Liam Bailey, head of residential research, Knight Frank, commented: "While falling property prices might be a shock to London homeowners looking to sell, it is good news to many looking to buy a prime property. A home that was worth £8m at the end of 2007 is now worth just under £6.9m a fall of 14.1% over the year. This is not just a benefit for cash-rich buyers, it is also a boom for those looking to trade up, as the gap between the value of their existing home and that of their target will have closed.
"However, London is looking even better value to one group in particular, overseas buyers. Of course, the capital has always been a very attractive offer to many internationally mobile high net worth individuals, notably Russians and Indians. Despite the slowdown, the elegant and discreet squares of central and west London, or high-profile luxury schemes in areas such as Knightsbridge, are still proving a powerful draw.
"The falling pound may be the target of a host of doom and gloom headlines in the press, but it is making property in the capital even cheaper for these international buyers. Indeed, Americans or Europeans who have had their eye on a property in a particular area of the city are increasingly visible, even if the level of viewings has yet to be fully translated into sales.
"That same £8m house was worth 11.11m at the end of 2007, now it is worth 7.85m. This represents a fall of 29.4%, over double the drop for those dealing in pounds. To a keen French or German investor, it may look as if there has never been a better time to scoop up a trophy London property.
"From the other side of the Atlantic, the view is even more appealing. That same home was worth $16.3m in December 2007, meaning that from New York, London looked even more expensive than usual. However, by the end of 2008, the same property could be had for under $10.2m, a 37.6% decline in price.
"Of course, falling prices have some way to go, and many pundits and economists believe the pound will continue to depreciate against other currencies, at least in the short term.
"However, it is clear that these trends are combining to produce a dramatic increase in interest in London property. As many prime homes only come to the market once in a generation, it is likely that those with their eye on a particular location will begin to move over the next few months. Meanwhile, as time goes on, interest will only continue to rise."
Source: Knight Frank