London prime property dominance to continue
Wednesday, 26 October 2011 11:05 AM
London's dominance of the prime property market is to continue with average prices set to rise by five per cent next year.
The Knight Frank UK housing forecast predicts that the trend towards growth in the prime central London property market will continue, with a cumulative price rise of 24 per cent by the end of 2016.
This will mean the prime central London market remains "de-coupled" from the rest of the UK, with house prices across the country expected to drop by five per cent next year and show little convincing growth until 2014.
Liam Bailey, head of research at Knight Frank, said: "Prices in prime central London are currently at an all time high, despite which we believe there is scope for further price gains over the next 12 months, averaging five per cent across 2012.
"The reasons which have underpinned recent growth, a weak pound, renewed wealth creation in emerging markets, the search for safe-haven assets and flight capital – all seem set to continue at least in the short term reinforcing our positive view for next year."
Many overseas buyers at the top end of the market view London as a safe haven from global financial problems, a trend which is expected to continue.
That picture is not reflected across the country though and in real terms, adjusted for CPI inflation, house prices will have fallen 29 per cent by 2015 from the peak of the market in 2007.
It is expected that they will not hit their 2007 levels again till 2028.
Grainne Gilmore, head of UK residential research at Knight Frank, said: "After falling by 15 per cent in 2008, it was widely forecast that the market would dip again the following year, but this failed to happen - largely because of the drop in interest rates.
"We believe that this correction is still to come, but that it has been pushed further and further out because of low base rates. But next year – amid a "perfect storm" of a struggling economy, public sector cuts and rising unemployment – prices will fall.
"As interest rates start to rise, prices will struggle to maintain any notable growth until 2015."
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