Luxury Real Estate in London - First Annual Price Drop in Five Years

Luxury property prices values in central registered their first annual drop in five years following a drop in consumer confidence and fears that the UK is about to enter a recession. One bright note is the Ultra-Luxury segment, which still seems immune

London Luxury Property Prices Falling

Knight Frank, a London-based real estate consultancy reports that property prices in London’s 9 most expensive neighborhoods dropped 1.6% from August 2007. Values fell 1.3% from July, following drops in the previous three months. In fact, house prices across the U.K. have now fallen ten straight months and London is only now catching up with this trend.

According to the Nationwide Building Society, the average property has seen £20,000 wiped off its value and now stands at £164,654 and demand from buyers remains subdued.

Nationwide is known for its “conservative,” predictions, so this is actually a warning shot across the bows of property prices in the UK. Expect to see further drops this year and no recovery at least until end 2009.

Home-buyers are being affected “by pessimism in the financial services sector, particularly relating to the size of this year’s bonuses,” Liam Bailey, Knight Frank’s head of residential research, said in the statement.

Homes worth less than £1 million are the most affected, with appraised values down 9.2 percent from a year ago, because prospective buyers still rely on mortgages to make purchases.

Ultra-Luxury properties worth more than £10 million gained 2.9% from July, or 19% more than a year ago, basically because of demand from wealthy overseas investors paying cash.

Knight Frank describe these as “super prime” properties and suggest they “have proved immune from the downward trends elsewhere. There are now signs that the gap between this sector and the rest of the market is growing.”

Recent price records set include the most expensive basement flats in London, the sale to Lakshmi Mittal of the most expensive home in London for £117 million and the record price set for a luxury flat in St James’ Square.

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