Bloomberg News

London Luxury-Home Prices Rise as Investors Seek Security

August 30, 2011

(Updates with European outlook in sixth paragraph.)

Aug. 30 (Bloomberg) -- Luxury-home prices in central London climbed the most in nine months in August, Knight Frank LLP said, as the increasing risk of a global recession prompted investors to seek a haven for their wealth.

Values of houses and apartments costing an average of 3.7 million pounds ($6 million) rose 10.5 percent in the 12 months through August, according to a report released today by the London-based real-estate broker. That’s the most since November, when there was an 11.2 percent increase.

“There’s a lot of money out there looking for a home,” Liam Bailey, head of residential research, said by telephone. “You had the U.S. debt crisis, euro-zone debt crisis, financial market turmoil and none of those things have touched” London’s luxury-property market.

The benchmark Stoxx Europe 600 Index entered a bear market on Aug. 8 and has declined about 21 percent from this year’s high on Feb. 17 on concern that Europe will fail to contain its sovereign-debt crisis. Christine Lagarde, the International Monetary Fund chief, said Aug. 27 that the world economy is in a “dangerous new phase” and that officials must take new steps to fuel growth.

The pound’s weakness is making luxury real estate in London more affordable to overseas buyers, Bailey said. The U.K. currency has lost about 20 percent against a basket of 9 other developed-market currencies since the property market’s previous peak in March 2008, as measured by Bloomberg Correlation- Weighted Indexes.

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European confidence in the economic outlook in August fell the most since December 2008 as the sovereign-debt crisis clouded growth prospects across the 17-nation euro region. The European Union may reduce its 2011 growth forecast from 1.6 percent, EU Economic and Monetary Affairs Commissioner Olli Rehn said yesterday.

The number of prospective buyers viewing prime central London properties increased 23 percent in the three months through July, while the number of homes for sale rose 13 percent, Knight Frank said. The company didn’t give comparable numbers for the two periods.

Prime central London real estate is reflecting the security that gold is offering investors, Bailey said. Gold for immediate delivery has climbed 27 percent this year and reached a record $1,913.50 an ounce on Aug. 23.

‘Safe-Haven Investments’

“The fact that London wasn’t hit by the potential of a second global recession suggests that people are looking for safe-haven investments,” he said. “If they think that gold’s one beneficiary, it looks as if London property is one of the others.”

At the beginning of August, arson and looting in the city’s Tottenham district sparked the worst riots seen in Britain since the 1980s. More than 3,000 crimes were committed in the capital alone and the damage that spread to cities including Birmingham and Manchester may amount to more than 200 million pounds, according to the government.

“The riots seem unlikely to dent most international buyers’ desire for property in the city,” Knight Frank said. The broker predicted that luxury-home prices will increase by as much as 12 percent this year.

Property values rose 0.9 percent in August from the previous month and are now 36 percent higher than in March 2009, when the U.K. property market slumped during the global recession.

Rents for prime residences rose 0.2 percent from July, according to the broker. British tenants accounted for about 42 percent of the total, while Americans were the largest group of foreign tenants, with 14 percent.

--Editors: Andrew Blackman, Christine Maurus.

To contact the reporter on this story: Chris Spillane in London at cspillane3@bloomberg.net.

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net.


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