Another blow to UK luxury home prices

Source : Business Times - 3 Feb 2009

London luxury home prices had the second-biggest decline on record in January as would-be buyers struggled to secure mortgages from banks hurt by the global financial crisis.

The average value of homes costing more than £1 million (S$2.1 million) in London’s most expensive neighbourhoods fell 3.7 per cent from a month earlier, Knight Frank LLP said in a statement on Jan 31. In the past 12 months, prices have slumped 21 per cent, the biggest annualised drop recorded by Knight Frank.

‘The sudden restriction of mortgage finance’ was the main cause of the market’s decline last year, Liam Bailey, head of residential research at London-based Knight Frank, said in the statement. ‘This factor is continuing to cause problems for the housing market and the wider economy.’

The cost of buying a luxury home in the UK capital has fallen for 10 straight months, declining 21 per cent since the market’s peak in March. The biggest drop since the broker started the survey in 1976 was 3.9 per cent, recorded in October.

Financial services companies in London may cut as many as 60,000 jobs by the end of 2010, according to research firm Oxford Economics. As a result, the market won’t rebound soon, Knight Frank said.

‘Price falls should begin to level out towards the end of 2009, although 2010 is likely to see prices move sideways at best,’ said Mr Bailey. Knight Frank now expects prices to fall as much as 35 per cent from their peak, compared with its previous estimate of 30 per cent.

The drop in prices has attracted more potential buyers. The fall in the pound against the US dollar and the euro is prompting international buyers to look at London properties. Viewing levels last month were 65 per cent higher than a year earlier, while the number of international buyers registering with a broker in January was 35 per cent more than the year before.

The neighbourhoods attracting the biggest increase in interest last month were Mayfair, Knightsbridge, Belgravia and Chelsea, said Knight Frank.

‘If the weakness of sterling continues, it will help to bolster demand from the foreign super-rich, partially compensating for the reduced earning ability of many City-based buyers,’ said Mr Bailey.

The pound has fallen 28 per cent against the US dollar in the past year and 14 per cent against the euro in the past year.

House prices across the UK fell 1.3 per cent in January from the previous month and about 17 per cent on an annual basis, Nationwide Building Society, the UK’s largest customer- owned mortgage lender, said on Jan 29. The report covered all types of homes.

While the biggest drop in values has been in properties costing as much as £2.5 million, homes costing more than £10 million have lost 20 per cent in value since September.

In November, Richard Cutt, head of Knight Frank’s Mayfair agency, sold a modernised 7,321 square foot house near Grosvenor Square to a Middle East buyer for £15 million, 25 per cent less than the original asking price.

A property costing £100,000 in 1976 when Knight Frank started its index, peaked in value at £3.99 million in March. By the end of last month, it was worth £3.13 million, the equivalent of losing about £2,810 in value every day over the intervening 10 months.

London-based Knight Frank compiles its monthly index from estimated values of properties in the Mayfair, St John’s Wood, Regent’s Park, Kensington, Notting Hill, Chelsea, Knightsbridge, Belgravia and the South Bank neighbourhoods of London.