Prime numbers

The rise and rise (and rise) of the central London property market continues apace, seemingly disconnected from the rest of the economy and the rest of the country.

Research released by Knight Frank yesterday found that prices in the prime central London market are up 9.6% over the last 12 months and are now 35% higher than their post-credit crunch low point in March 2009.

Prime central London rents, which had slumped in the wake of the credit crunch, are now 15% up on a year ago and are 1% higher than their previous peak in March 2008.

Contrast that with the picture of the market in general painted by Nationwide last week: UK prices were unchanged in June and down 1.1% on a year ago. London was the only region to show an increase year on year but the 2.9% rise in the price of the average home in the capital was still modest by comparison with that recorded by Knight Frank in the prime market.

Differences between the market in London and the rest of the country are nothing new of course. However, previous Knight Frank research has made clear the extent to which there is now a global market in central London property.

The study concluded that ‘the most important driver behind price growth has been growing demand for London property from international buyers’. Over the last 12 months, half of sales over £2m and two-thirds of sales over £5m had been to non-UK buyers.

That is a much higher proportion than other global cities like Manhattan (15% of properties over £2m) and Singapore and Hong Kong (25%).

And a ready supply of equity-rich investors from around the world (Russia had the most buyers but the Middle and Far East were not far behind) was pushing more would-be buyers in the rental sector and helping to drive up rents. 

The growth shows few signs of slowing down. The Financial Times reported yesterday that leading hedge fund Orion Capital Managers has acquired a prime site in Chelsea and plans to build a £400m housing complex that could rival One Hyde Park as the capital’s priciest address.

‘Residential in London is trading like gold at the moment,’ Aref Lahham, a director at Orion, told the FT. ‘If you are a billionaire and you want a safe place to put some of your cash, London real estate is a bolthole. People want to live in London. You have legal rights, human rights and you are between time­zones.’

More tax rights too: I stand to be corrected but as far as I’m aware non-doms pay no capital gains tax on their UK property. They can also afford the best accountants. 

It would be easy to dismiss this Monaco-on-Thames as a city inhabited by a few oligarchs and billionaires that has nothing to do with the rest of the country. I’m not so sure. 

The rest of the market is limping along hamstrung by the continuing shortage of mortgages, with prices propped up by low interest rates and lack of supply and rents buoyant thanks to rising demand from people who can buy.

The June buy-to-let index from LSL Property Services found that average rents in England and Wales were up 4.1% on a year ago. However, rents in London rose by 6.9% to break through the £1,000 per month barrier for the first time. 

Far from rents being restrained by cuts in housing benefit at the bottom of the market (as the government repeatedly claimed they would be), they seem to be rising on the back of soaring global demand at the top of the market and sustained demand in the middle. 

Their house prices and rents may be many times higher, but those oligarchs and millionaires are still living in the same city as the would-be first-time buyers trapped paying high rents and the housing benefits claimants forced to move out of central London. 

The bigger Monaco-on-Thames becomes, the more residential trades like gold, the more it is driving up prices and rents and housing benefit costs elsewhere.

And the more areas of central London are subject to the housing benefit clearances, the more space is created for those real estate boltholes.