The prime residential markets of London continued to show price growth in the 4th quarter of 2011, despite the strong headwinds facing the wider UK housing markets.
Prices rose by a modest 0.8% over the quarter, reflecting a year of two halves in which annual price growth of 8.7% was driven by strong price growth in the first half of the year.
Prime Central London performed the most strongly over the course of 2011, as it benefitted from strong demand from international buyers. They accounted for 55% of sales and introduced £4.3 billion of new equity into the market in the year (See Table 1).
Global unrest and economic uncertainty played to London’s advantage by funnelling that equity into its housing markets.
The European buyer share of the market rose from 13.2% of sales in 2010 to 19.5%, whilst that of Middle Eastern buyers increased from 7.6% to 8.5% (See Table 2).
Ultra prime market
In the ultra prime market, where values typically exceed £15 million and overseas demand is strongest, annual growth ended the year just short of 19% and record sales, with an aggregate value in excess of £1.9 billion, were achieved in the year. However even in this market growth was relatively modest in the second half of 2011 at just 3.7%.
In the more domestic markets of prime South West and prime North London, annual price growth has been less strong (between 7.0% and 7.5% on average), though these areas have seen some of the strongest transaction levels in the capital.
With less international demand and without the consequential injection of equity, these markets have been more reliant on the recycling of existing equity, less of which was exported into the commuter belt than in previous years (See Graph 1).
This equity has been all-important, particularly given that the rental market – which is more dependent on earnings and earnings expectations – saw modest rental falls in the quarter (averaging -2.0% across the quarter).
Prime domestic markets
Sentiment among buyers in the prime domestic markets has not been immune to the weak economic outlook and the challenges facing the financial and business services sector.
This has been most evident in the prime markets of the East of City where, despite values being restored to levels seen at the peak of the market in the third quarter of 2007, annual price growth remained below 5%.
The distinctions between overseas and domestic demand are also reflected in the locations and types of property that have performed most strongly. In central London, strong international demand has meant large trophy houses and turnkey flats have outperformed top floor walk-ups and basement flats.
Outside of central London demand for such properties is less strong, even in markets such as Hampstead.
In the East of City markets foreign equity has been targeted at investment stock, while prime South-West and North London period family houses with good tube access have proved the most desirable. In both cases the quality of property has been the key differential (See Table 3).