The prime London residential market has recorded stronger price growth in the past three months than at any time since March 2012, defying expectations that values would flatline this year, according to the Savills quarterly prime London index.
Across prime London prices rose 2.5 per cent between April and June, bringing annual growth up to 6.6 per cent from 5.5% at the end of the first quarter. But, says Savills, there are significant differences in performance between locations and price bands that reflect differences in buyer profiles, reasons for purchase and their perception of the market, with evidence that some market segments are now looking fully valued.
The strongest growth was seen in the predominantly domestic markets of prime southwest London (running from Fulham to Richmond and Battersea to Wimbledon), where values rose 3.2 per cent in the last quarter. Annual growth now stands at 8.5 per cent, much higher than the 4.4 per cent seen in prime central London. Despite reduced city bonuses, these markets are benefiting from wealth accumulated prior to the downturn, new wealth creation, especially from West End hedge funds, and increased buying activity from international buyers working and resident full time in the capital.
Prime property in Fulham has been the star performer, outperforming all other districts across prime London with annual price growth of 13 per cent at the mid-year point. This means that £1million invested in a Fulham property would have gained £2,500 per week over the past year, compared with a more modest £845 in prime central London.
"Fulham is classic example of an area which has undergone ultra-gentrification, attracting international and domestic buyers who, despite significant wealth, have been priced out of the central London market,” says Lucian Cook, director of Savills residential research. ”Such migration of wealth is being seen from Chelsea to Fulham, Kensington to Battersea and Wandsworth, and from Notting Hill to Chiswick.
“At the same time, domestic wealth has resisted a move out of the capital in this recovery cycle, resulting in a concentration of demand in prime southwest London and similar markets such as Islington.”
Prime central London values rose by just 1.6 per cent in the quarter and 4.4 per cent year on year. Here price growth has become concentrated in the very core locations of Mayfair, Chelsea, Belgravia and Knightsbridge which are the primary focus of new global wealth.
“Other central London markets have remained more reliant on world money and price growth has become more subdued,” says Cook. “Locations such as Kensington, Holland Park, Notting Hill and St John’s Wood have been more sensitive to the effect of stamp duty changes for properties over £2 million than the core central locations.
“This has focused buyers’ minds on whether certain segments of the market are fully valued for now, with the result that these areas barely registered any price growth in the quarter, while year on year growth ranges from just 1.6 to 2.3 per cent.”
Savills research also highlights distinctions in performance by price band. Properties worth over £10 million have outperformed to date, to stand 38 per cent above their previous peak. However, values appear to have plateaued for the time being, although transaction levels remain robust .
At the end of 2012, Savills forecast that London’s prime residential markets would be static through 2013. “It is increasingly clear that prime London cannot be considered a single, homogenous market,” says Cook, “but average price growth of 4.8% per cent at the half year point could not have been foreseen at the turn of the year.”
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