October 3, 2008

Luxury Property Prices in London Fall for Fifth Month in a Row

Luxury property values in central London fell for a fifth month in September following a round of job losses at investment banking firms

Central London Property Prices Falling

It has long been the case that central London’s luxury residential property prices rely almost exclusively on super-sized City bonuses. When Lehman Brothers filed the largest bankruptcy in history last month, more than eight hundred jobs were lost at the investment banking firm, with more losses expected soon. The City of London Corporation estimates 42,000 jobs in banking or financial services will disappear over the next year.

According to an index compiled by Knight Frank LLP, the estimated average value of a house or apartment in the city’s nine most expensive neighborhoods fell another 1.8% from August Property values declined 4.5% from September 2007. The index covers homes mostly valued around £1 million ($1.8 million)

It’s unsurprising that confidence is still low in the housing market, especially bearing in mind that prime London buyers are disproportionately drawn from the financial services industry.. Luxury homes in central London will almost certainly continue to decline through 2009 and won’t recover until 2010, bringing their decline in value since September 2007 to about 15%. Liam Bailey, head of residential research, Knight Frank

Which is actually rather an optimistic estimate, considering that a recent report by Nationwide Building Society show prices have already fallen 12.4% in the last year across the country.

Even the “super prime’” properties costing over £10 million fell in value from August. The smallest monthly decline was for homes worth less than £1 million. Central London’s luxury residential real estate market has joined the slide in values affecting the rest of the U.K. London and southeastern England accounted for more than 75% of sales of £1 million+ houses last year, according to HBOS Plc.

Certainly the short-term outlook is not positive with City experts predicting that borrowing could become even harder than lenders have admitted, since the Bank of England quarterly survey of credit conditions released yesterday was carried out before the past two weeks of financial turmoil. Almost 40% more lenders told the Bank that the availability of secured loans such as mortgages had grown worse in the past three months than said it had improved; 17% more lenders said that secured loans would be harder rather than easier to come by in the next three months.

With Dubai government owned property investment company Limitless pulling out of a deal to buy stricken London-based property developer Minerva, and rumors of foreign investment companies needing to liquidate their portfolios quickly to cover cash-flow short falls, it would seem London is going to be hit at least as hard as the US.