London Luxury-Home Prices Gain as Buyers Seek Secure Assets

Luxury home prices in central London climbed the most in 11 months in September, Knight Frank LLP said, as the European sovereign debt crisis encouraged investors to buy less-risky assets.

Values of houses and apartments costing an average of 3.7 million pounds ($5.7 million) rose 11.4 percent from a year earlier, the London-based real-estate broker said in a report today. On a monthly basis, prices rose at the slowest rate since October 2010 as buyers delayed purchases after the worst riots in Britain since the 1980s.

“The Eurozone crisis is probably the biggest concern, primarily because people are very uncertain about what would happen if the euro broke up,” Liam Bailey, head of residential research, said by telephone. That makes assets in the U.K. attractive because they’re denominated in pounds, he said.

On Sept. 20, Italy became the sixth euro-region country this year to have its credit rating downgraded. Two days later, the Stoxx Europe 600 Index slid to the lowest level since July 2009, extending a decline from this year’s high on Feb. 17. The world economy faces high “downside risks,” International Monetary Fund Managing Director Christine Lagarde said in an interview with Tom Keene on Bloomberg Television last week.

Gross domestic product in the euro area will expand 1.7 percent in 2011, according to the median economist estimate in a Bloomberg survey. Last year there was growth of 1.8 percent.

Russian Buyers

The number of prospective buyers viewing prime central London properties increased 25 percent in the third quarter from a year earlier, according to the report. Prices are at a record, 4.5 percent higher than the market’s last peak in March 2008.

The U.K.’s record-low interest rates and the pound’s weakness are making central London’s real estate more attractive to overseas buyers, Bailey said. International purchasers now account for 55 percent of luxury-home deals in the city compared with 49 percent a year ago.

“Russians are rising in number at the moment,” Bailey said. “There’s a bit of uncertainty because there’s an election next year and people are looking to invest money overseas.”

Buyers from Russia accounted for 6.3 percent of all purchases in the 12 months through September, followed by the United Arab Emirates with 4.7 percent and the U.S. with 3.9 percent. About 3.2 percent of sales were to French buyers, the highest of any mainland European country.

Homes bought by billionaires in London cost 3,090 pounds a square foot at the end of June, a 3 percent increase from six months earlier, Savills Plc (SVS) said last week. Prices in Britain’s most expensive city climbed 38 percent in the five years through December 2010, the London-based property broker said.

London Riots

Values rose 0.6 percent in September from a month earlier, the market’s worst performance since prices fell 0.2 percent in October 2010. At the beginning of August, arson and looting in the city’s Tottenham district sparked riots in which more than 3,000 crimes were committed in the capital alone.

“In the final weeks of August and first week of September there was a slowdown in deals being made,” Bailey said. “There was a slight knock-on from the riots, which delayed a few purchases.”

Knight Frank said luxury-home prices will increase by as much as 12 percent this year, maintaining a forecast the broker made last month. Values climbed about 10 percent in 2010.

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.