Central London property still rising in value, despite interest rate rises

Central London residential property prices rose by 3.9% in July 2007, the highest jump in a single month for 31 years, according to the Knight Frank Prime Central Location index. Lack of supply of suitable properties is considered the reason for the continued rise in residential prices throughout central London, with rises in house prices consistently outperforming gains in flat prices month on month since January.

July’s figures give an annualised growth of 36.4% - the highest annual growth since 1979 – and now the reasons for the lack of supply driving the outstanding price increases are coming under the microscope. It appears that foreign buyers have a large part to play, as 61% of all property over £4 million for sale in prime central London is sold to foreign buyers who, unlike domestic buyers tend not to have another property to release back into the market, thus restricting supply even further.

The substantial rise in property prices has also led to a shift in the behaviour of foreign buyers who initially buy their property for occupation while working in the City. In the past many would arrive to undertake a prestige job in the City and purchase a property solely for occupation while they were in the country and sell the property immediately after returning home. However, because of substantial rises, such as the 36% recorded over the last year, property is increasingly being retained as an investment once the buyer returns home. This has helped fuel the property shortage and in turn keeps central London property values high.

In 2004 the average period that a foreign buyer would hold onto their property after returning home before selling it, was nine months. Last year that period had risen to 20 months and is still rising. It appears that rather than take a quick profit on their London property foreign landlords are now willing to reap an income from tenants while watching the capital value of their property investment surge.

Of course, foreign buyers cannot take all the blame - or credit - depending upon your point of view, as for the substantial and sustained increases in property prices in central London multi-million City bonuses have been swiftly invested in prime central London property, which is still seen as the most solid of investments. So, unless foreign buyers and city brokers decide to liquidate their investments the outlook for central London property seems bright indeed.