Residential values across the whole of prime London have ended 2011 on a record high says the international real estate adviser, Savills.
A 'flight to quality' by international safe-haven buyers means the best central addresses have significantly outperformed, but locations fuelled only by domestic buyers have begun to lose momentum.
Prime central London values rose by 1.0% in the final quarter of the year, taking total growth in 2011 to 14.1%. This compares to annual growth of just 7.2% in 2010, and represents a rise from 13.6% in the 12 months to the end of September 2011. Houses have continued to outperform flats across prime central London, with values up 15.7% in 2011 compared to 13.3% for flats.
"This 2011 growth was unexpected at this time last year and has been almost entirely fuelled in the second half of the year by a massive injection of overseas cash by foreign buyers," says Yolande Barnes, Director of Savills research.
The international market place
Demand has come from across the world, with international buyers accounting for around 55% of prime central London sales, up from 52% in 2010. Global unrest and economic uncertainty has impacted, with the European buyer share of the market rising from 13.2% of sales in 2010 to 19.5%, and Middle Eastern buyers from 7.6% to 8.5%. By contrast, Chinese buyers have not yet entered the market in great numbers, accounting for just 2% of sales compared to 3.2% in 2010.
While annual growth continues to trend upwards across prime central London as a whole, quarterly price growth has slowed, down to 1.1% in the final quarter of the year from 5.5% in the first quarter. This suggests that the market could be passing one of its regular peaks.
The top end of the prime central London market has seen exceptional levels of growth. International buyers have accounted for almost three quarters of sales over £5 million. The ultra-prime sector (with average values of £15 million) saw values rise 18.6%% during 2011, leading to a record high at 24% over their former peak, testament to the growing demand from the global super-rich.
"Prime central London residential real estate has had an extraordinary year, particularly at the top end, but it has been a year of two halves for the city's more domestic prime markets," says Barnes.
"Buying activity based on international wealth has created a market that is distinct from the rest of prime London. The best addresses in the best locations have become elevated to international asset class status and are valued as a relatively safe store of wealth in an uncertain world. Some of these buyers are making a currency play but most are also seeking a secure long-term investment.
"Overseas buyers tend to hold property for longer than UK sellers and so have become net investors. We estimate that there has been a net inflow of international wealth totalling around £4.3 billion this year alone," says Barnes.
Domestic buyer locations a world apart?
Beyond the central locations, those areas that are dominated by UK buyers particularly the prime southwest locations through from Clapham and Wandsworth to Richmond and Wimbledon have seen lower levels of growth in the second half of the year. Price recovery in these markets was sustained through 2009 and 2010 by equity generated in the City and financial sector in general and in bonuses in particular. As such sources of income have become less certain, so sentiment has begun to weaken.
Prices in prime southwest London remained virtually flat in the last three months of this year, with a marginal rise of just 0.1%. This takes year on year price growth to 6.2% and 8.2% since peak.
"Until sentiment in the financial sector improves we are unlikely to see significant price growth in such locations. Values are being sustained by a good balance between supply and demand, with relatively low stock levels combined with relatively low levels of new applicants.
"Interestingly, we are seeing something of a spread of the impact of international buyer activ