April 11 (Bloomberg) -- Luxury-home prices in London rose at a record monthly pace in March as Russians and Middle Eastern buyers competed for a smaller number of properties with financiers from the City of London, real estate broker Knight Frank LLC said.

The average price of the U.K. capital's most expensive houses and apartments increased by an average of 3.1 percent last month from February, according to data compiled by Knight Frank. The annual increase was 32 percent, the highest in 28 years.

``The continued strong performance can be explained by supply shortages and ongoing international demand now that City bonus money has been paid out,'' said Liam Bailey, head of residential research at Knight Frank, in an interview.

The average price of a luxury house in Knight Frank's monthly index is now almost 5 million pounds ($10 million), with apartments costing 2.5 million pounds. A typical house has appreciated by 100,000 pounds, or about four times the average annual U.K. wage, each month over the past year.

Prime residential property prices in the U.K. capital have now risen for 27 consecutive months. In the first quarter, house prices rose by 10 percent and apartments by 7.5 percent. Chelsea, favored by bankers, and St John's Wood continue to perform well, said Bailey.

Hyde Park Apartments

Luxury-home prices in London are rising about three times as fast as U.K. house prices generally. Home prices rose 11.1 percent in the three months to the end of March from the same period a year earlier, HBOS Plc, Britain's largest mortgage lender, said April 5.

The most expensive homes in London, or ``super prime'' properties such as the Hyde Park luxury apartment complex project that's managed by Candy & Candy Ltd., are being pre- marketed with price tags of about 4,500 pounds a square foot, according to newspaper reports.

In New York City, the most expensive apartments bordering Central Park sell for close to $7,000 a square foot.

Sheikh Hamad bin Jassim bin Jaber al-Thani, the prime minister of Qatar, last month paid a record 100 million pounds for the highest and biggest penthouse in the Candy & Candy Hyde Park development, according to the London-based Times.

Russian Buyers

Russians account for 21 percent of all buyers paying at least 8 million pounds for London homes, said Bailey. Middle Eastern buyers account for another 13 percent. Britons buy 37 percent of such properties, he said.

Roman Abramovich, Russia's richest man and owner of Chelsea Football Club, spent 49.3 million pounds buying six properties in London between June 2005 and August 2006, according to the Daily Mail.

Other international business people including Lakshmi Mittal, chairman of the world's largest steel company, and brewing heiress Charlene de Carvalho-Heineken have bought property in London in recent years.

For houses worth more than 3 million pounds, U.K. citizens account for 40 percent of purchases. Other Europeans make up 22 percent of buyers and U.S. citizens, 16 percent, said Bailey.

Record bonuses of 8.8 billion pounds paid to 300,000 bankers, brokers and fund managers last year have largely filtered into the luxury housing market, said Knight Frank. Bonus payments meant the market in the winter was now busier than in the spring, said Bailey.

Pricey Precincts

The number of prime properties coming onto the market for the first time in March slumped 27 percent from February, the brokerage said. At the same time the number of buyers looking for such homes rose 16 percent from the previous month, Knight Frank said.

Sales in Belgravia, Mayfair and Knightsbridge regularly exceed $4,900 a square foot, said Bailey. CB Richard Ellis Hamptons said in September that London prices per square foot in the most expensive districts had overtaken Manhattan to become the priciest in the world. The Knight Frank survey covers seven postal districts in central London.

A property that cost 100,000 pounds when Knight Frank started its survey in 1976 was worth 3.99 million pounds at the end of March. The 40-fold increase is almost twice as much as the 21-times gain in the FTSE All-Share Index over the same period and a 400 percent gain in consumer prices.

The following table shows the increase in value of prime central London real estate since 1976, starting from a base of 100,000 pounds.

Year      Value in pounds   Percentage Gain
1976        100,000           --
1981        335,000          235
1986        675,000          101
1991        827,000           23
1996      1,111,000           34
2001      2,427,000          118
2007      3,990,000           64

Source: Knight Frank LLC

To contact the reporter for this story: Peter Woodifield in Edinburgh at pwoodifield@bloomberg.net.

Last Updated: April 11, 2007 03:53 EDT