Prime Central London Property Prices Continue to Rise

London's 'safe haven' status is continuing to attract a higher number of homebuyers from across the world, which is placing greater pressure on the city's acute housing supply crisis, pushing property prices higher in the process.

The situation is most acute in the heart of the capital, with the average price of a home in central London now 13 per cent above the previous market peak in early 2008, according to Knight Frank. This reflects high buyer demand coupled with a severe shortage of property for sale in Marylebone, Mayfair, Kensington and Fitzrovia, amongst other sought-after areas.

"London still remains a key destination for investors looking for 'safe-haven' assets, a fact reflected in the continued rise in interest from prospective buyers, up 23% in the three months to July compared to the previous quarter," said Liam Bailey of Knight Frank.

Increasing the supply of new build properties is central to dealing with some of the major problems facing the housing system; government has a critical role to play in enabling home builders to meet the country's housing need, particularly in central London.

For example, any house hunter searching for a house for sale in Mayfair or a flat for sale in Fitzrovia will find that there is very little stock on the market and this is underpinning prices in central London.

Jennet Siebrits, Head of Residential Research at CBRE, said: "London is still a bright spot in the UK residential market with a lack of supply and strong interest from international buyers looking for a safe haven for their money underpinning house prices."

A recent report compiled by property consultants CBRE shows that over the last decade London's population has grown by 850,000 whilst only 197,000 new homes have been constructed in London over the same period.

Reflecting on the growing supply-demand imbalance in the capital. Andrew Ellinas, Director of leading central London estate agents Sandfords, said: "The property market in central London is continuing to motor away from the rest of the UK."

The rise in property prices is also rippling out to leading secondary locations, such as St John's Wood. 

Located a short walk from Baker Street, St Johns Wood is considered to be one of the most popular neighbourhoods to live in London. It generally attracts a high level of demand from homebuyers - reflected by the lack of houses and flats for sale in St Johns Wood - making it one of the most expensive places to buy property in the UK.

It does not take a property expert to realise that prices in the capital are likely to rise unless more new homes are built in the foreseeable future.

The latest Housing Market Sentiment Survey from Zoopla.co.uk reveals that 63 per cent of homeowners expect house prices to rise between now and the end of 2012. This time last year, only 57% of homeowners expected an increase in property prices in the second half of the year.

"Homeowners evidently feel that there are some grounds for optimism, despite the backdrop of slow economic growth and tight mortgage lending," said Nigel Lewis of Zoopla.co.uk.

Rental demand should rise further in 2012

The London rental market has got a lot going for it. Property investors from around the world are flocking to the English capital with a view to snapping up properties in anticipation of future rental price growth, thanks to high demand for houses and flats to rent in London.

The city has long appealed to landlords looking for a safe buy-to-let property investment, particularly in recent years, on the back of rising rental returns, as rental values go from strength to strength.

Despite Britain's weak economic outlook and growing European woes, rental prices in London have been increasing due a surge in demand from tenants. This has been mainly driven by the fact that many would-be purchasers have had difficulties in raising the necessary mortgages required to buy a home.

"There are grounds for optimism because despite the bleak [economic] picture, many people have been excluded from buying, so there is an increase for rental," said Yolande Barnes of Savills. "The lack of supply has put pressure on rentals so yields are expected to increase."

With the 2012 Olympic Games drawing closer, demand for rental properties in London will almost certainly increase further next year; an attractive proposition for active property investors.

Many landlords are asking huge rental prices during next summer's Olympics. In some cases, asking rents are reportedly already rocketing to six times the normal value. London-based estate agents Foxtons is one that is advertising Olympic lets at record-breaking prices, including a penthouse in Knightsbridge that is being advertised at £100,000 a week as an Olympics let.

Property expert Jane Marr of J Marr Group said that searchers for property for sale in London will be as popular as ever next year as London is considered a "safe haven" for property investment. This is particularly the case at the high end of the market, including houses for sale in St Johns Wood as well as flats for sale in St Johns Wood, Chelsea and Mayfair, among other primary locations.

"Compared to other European cities, London is very attractive and demand for luxury homes is still rising. We asked if the rich were getting richer in a recession and from here it certainly looks that way," she explained.

In the prime London property market, the interest is mainly from overseas nationals, especially those from China, Russia and Europe. This has certainly been the case as far as demand for flats for sale in Primrose Hill is concerned.

Andrew Ellinas of Sandfords commented: "Overseas buyers are particularly keen to invest in the Capital especially since the Eurozone crises, with many properties sold going to cash-rich Europeans looking to move some of their wealth into the stability of the prime London property market."

Flats for sale in Little Venice have also attracted a high level of interest from international purchasers, with some homes being sold for sealed bids of in excess of asking prices.

Christian Harper of estate agency Oliver Finn told the press: "I believe the dramatic increase in prices has been fuelled by both a shortage in available stock and foreign investment. We are back to sealed bids and high levels of activity due to a worrying shortage of new instructions."