London Luxury Home Prices Increase to Record as Foreigners Dominate Market

Prices of central London’s most expensive homes reached a record as foreign buyers dominate the city’s luxury residential market, Savills Plc (SVS) said.

Values of houses and apartments costing an average of 4 million pounds ($6.3 million) rose 14.1 percent this year compared with a 7.2 percent gain a year earlier, Yolande Barnes, Savills’s director of residential research, said in a report today. While prices are 16.9 percent higher than their previous peak in late 2007, growth slowed in the fourth quarter, suggesting the market could be passing its high point, according to Savills.

London’s luxury-home values have accelerated this year as wealthy individuals seek a haven for their money in areas such as Belgravia, Knightsbridge and Mayfair. Values rose 1.1 percent in the fourth quarter compared with 5.5 percent in the first three months of the year, the smallest gain since Dec. 2010, according to Savills.

“The best addresses in the best locations have become elevated to international asset class status and are valued as a relatively safe store of wealth in an uncertain world,” Barnes said in the report. “Some of these buyers are making a currency play, but most are also seeking a secure long-term investment.”

Debt Crisis

The U.K.’s FTSE 100 Index fell 12 percent from its February high through yesterday as European policy makers struggled to prevent the sovereign debt crisis from spreading beyond Greece. The European Central Bank cut its 2012 growth forecast for the euro area, Britain’s biggest trading partner, this month to 0.3 percent.

Overseas buyers comprise about 55 percent of the market for prime central London homes led by mainland Europe, according to the report. Buyers from the continent accounted for about a fifth of sales this year, according to Savills, compared with 13.2 percent a year earlier. Middle Eastern investors made up 8.5 percent of sales, while Chinese purchasers represented 2 percent of the total.

The smaller gain in the fourth quarter “suggests that the market could be passing one of its regular peaks,” Barnes wrote. The 2011 growth “has been almost entirely fueled in the second half of the year by a massive injection of overseas cash by foreign buyers.”

Prices of homes with an average value of more than 15 million pounds -- what Savills calls “ultra prime” -- rose 18.6 percent this year. International buyers made up around three quarters of sales of homes and apartments valued at more than 5 million pounds, the report said.

Around 4.3 billion pounds has been spent on luxury residential real estate in central London in 2011, according to Savills. An unfurnished penthouse apartment in London’s Knightsbridge neighborhood was purchased for about 100 million pounds earlier this year, according to a person with knowledge of the deal.

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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