July 1 (Bloomberg) -- Luxury-home prices in central London climbed to a record in June, exceeding the peak reached 27 months earlier as overseas buyers took advantage of a weak pound and sought a haven for their wealth, said Knight Frank LLP.
Values of houses and apartments costing an average of 3.7 million pounds ($5.9 million) increased 0.9 percent from May, according to an index compiled by the London-based property broker and released today. The annual gain was 8.1 percent and the index of values exceeded the previous record reached in March 2008 by 2 percent.
The cost of a home in neighborhoods such as Belgravia and Holland Park increased by 34 percent since March 2009, recovering from a 12-month slump triggered by the credit crisis. Foreign buyers are turning to London real estate to protect their assets from political and economic instability in their home countries, driving up prices for prime homes.
“We are seeing the very wealthy from the world’s trouble spots coming to the U.K. -- they think it’s a no-brainer,” said Charles McDowell, who this year advised three buyers of homes costing at least 20 million pounds in Chelsea, Mayfair and Kensington.
Two of McDowell’s clients are Greeks seeking to preserve wealth as their government struggles to slash its budget deficit, he said. This has also increased interest in London homes from euro-region buyers, McDowell said.
The pound’s 16 percent slide against a basket of currency’s since the market’s previous peak in March 2008 has also made an apartment or house in an affluent London neighborhood more affordable for overseas buyers.
Middle East Turmoil
The political turmoil in the Middle East that led to the overthrow of rulers in Tunisia and Egypt earlier this year has increased the number of house-hunters from the region, agents said.
“A lot of Middle East buyers already own property in London, but we are seeing them upgrading to a larger property to give them the possibility of a more permanent residence,” said Mark Pollack, co-founder of Ashton Chase, a broker specialized in the Hampstead and St. John’s Wood neighborhoods.
The unexpected strength of demand led Knight Frank today to increase its prediction for price growth for prime homes in central London to 9 percent from an earlier estimate of 3 percent. Last week, Savills Plc predicted values would gain by 8 percent this year, having previously estimated a 1 percent drop.
“Activity measures are pointing to continued strong conditions in the central London market over the next few months,” said Liam Bailey, Knight Frank’s head of residential research.
Price growth may slow in the second half as the record values persuade more owners to sell, he said.
Last month, Knight Frank had a 12 percent increase in the number of properties on its books for sale compared with the end of 2010 and sales instructions rose 55 percent from June 2010.
The number of agreed property sales rose 52 percent in June from a year earlier, Bailey said, while the number of prospective buyers -- which still exceeds properties for sale -- was little changed.
With mortgage finance hard to obtain and personal finances squeezed by accelerating inflation and tax increases, prices in Britain’s mainstream housing market are falling. Values in England and Wales declined 2.2 percent in May from a year earlier, according to Land Registry figures based on actual transactions.
London was the only region where average home prices advanced, gaining 2.9 percent from a year earlier in May. In the region surrounding Newcastle in northeast England, meanwhile, values fell an annual 6.9 percent, the worst-performing area in England, according to the Land Registry.
Knight Frank compiles its luxury-homes index from estimated values of properties in the Mayfair, St. John’s Wood, Regent’s Park, Kensington, Notting Hill, Chelsea, Knightsbridge, Belgravia and South Bank neighborhoods of London.
--Editors: Jeff St.Onge, Andrew Blackman
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