London Luxury-Home Prices Increase Most Since 2008 (Update1)

Feb. 3 (Bloomberg) -- Luxury-home prices in central London rose last month at the fastest annual pace since April 2008 as a growing number of buyers chased fewer properties on the market, Knight Frank LLP said.

Values of houses and apartments costing more than 1 million pounds ($1.6 million) climbed 11.5 percent from a year earlier, the London-based property broker said in a statement today. The 1.1 percent gain from December was the 10th straight monthly advance and the smallest since August. Prices remain 12 percent lower than the market’s peak in March 2008.

“There still seems to be considerable life left in the recovery in pricing,” Liam Bailey, head of residential research at Knight Frank in London, said in the statement. “While buyers are back in force, vendors are few and far between.”

Some potential sellers are waiting to put houses on the market until they see how the outcome of the U.K. general election, which must be held by June, affects regulation of the financial industry and taxation of banker bonuses, Bailey said. There is also concern that the withdrawal of the government’s economic stimulus package and cuts in public spending will impact the housing market.

Most of Knight Frank’s offices in central London have 15 percent to 20 percent fewer properties for sale than normal for this time of year, the broker said. At the same time, the number of potential buyers in January was 15 percent higher than the five-year average.

Property Shortage

A shortage of properties can create a domino effect, as potential sellers wait until they have more choice of places to buy themselves, Bailey said.

“Slim pickings are the fuel that has been driving this market bounce,” Bailey said. Some venders are starting to price their homes close to or even above peak levels again, which is a risky strategy “for anything other than perfect properties.”

“The market has not been truly tested by a well-stocked larder,” he said.

The pound’s weakness in the past two years has supported demand for British real estate by making it more affordable for overseas buyers. That has helped encourage property funds to raise more money to buy luxury homes.

The Prime London Capital Fund, the only open-ended property fund investing in prime central London residential real estate, has more than tripled funds under management to about 40 million pounds, it said in an e-mailed statement Jan. 26. That followed an investment by Lee Hing Development Ltd., a Hong Kong-based property investment company, and its chairman.

‘Incredibly Resilient’

“Prime London property has been incredibly resilient over the last couple of difficult years and has acted as a good protector of wealth,” said Stephen Yorke, chief executive officer of D&G Investment Management Ltd., the fund’s manager.

London Central Portfolio Ltd. has raised 4.5 million pounds in equity for its London Central Residential Recovery Fund, the only closed-end fund investing in the market. Hugh Best, its manager, said he expects to achieve his target of 10 million pounds by next month’s deadline, helped by South African investors. The fund will be able to invest as much as 23 million pounds, including debt financing.

“There is a feeling that London has weathered the economic storm, although some jobs may have been lost to Geneva,” Bailey said in the statement. “Buyers, both domestic and foreign, are still more than willing to commit to purchases.”

Consumer confidence rose in January as the U.K. emerged from the longest recession on record, Nationwide Building Society said today.

Previous Boom

Prices of luxury properties in central London surged 82 percent during the last boom, between January 2005 and March 2008, according to Knight Frank’s data.

The broker compiles its luxury 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.

January prices rose the most in Kensington, Knightsbridge and Notting Hill, the district where Conservative opposition leader David Cameron lives.

Residential development land prices in districts favored by bankers, such as Kensington and Chelsea, rose 7 percent in the fourth quarter of last year, more than anywhere else in the U.K., the broker said in a separate report yesterday. Urban land prices are still 51 percent below the peak in 2007.

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

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