London’s prime residential markets recorded average price growth of 5.1% over the course of 2012. However, over half the annual growth was seen in the first quarter, with the latter nine months of the year recording an increase of just 2.2% as the market entered a new phase following the 2012 Budget.

Central London

The slow down in growth was most marked in the high value markets of central London. Over the fourth quarter of 2012 values increased by 0.6%, leaving annual growth at an average of just 5.3%. This is substantially lower than the annual growth of 21.3%, 6.7% and 14.2% seen in 2009, 2010 and 2011 respectively.

Nonetheless, three and a half years of continued growth leaves average prime central London values 23.9% above their former 2007 peak.

In the past quarter, only Chelsea and Knightsbridge showed price growth of 1.0% or more. Along with Mayfair and Belgravia, these core prime central London locations have outperformed all others over the past five years. In 2012, Knightsbridge set the pace with prices rising 8.6% to leave them 41.1% above their 2007 levels.

Such central areas have continued to attract ultra-wealthy overseas buyers in search of a safe haven store of wealth. Analysis shows that despite the uncertainty caused by the tax changes, 2012 was a record year for the number of £5million+ sales 
in London.

Throughout 2012, there were just over 400 sales in the market over £5million compared to just over 350 in 2011. However, while the number of sales between £5million and £20million increased by 21% year on year, those over £20million were below the level seen in 2011, partly because of less stock available to purchase.

Outer Prime London

In the prime East of City markets of Wapping and Canary Wharf values increased by an average of 4.0% during 2012, leaving them 6.4% above peak, the lowest figure in prime London. Here, international buyers have become more prevalent accounting for 59% of buyers in 2012 compared to 28% in 2009.

However, their behaviour is very different compared to those buying in the core central areas, here, the investor buyers, most notably from Asia, are buying lower value stock predominantly for income yield as much as a store of wealth. This activity has absorbed much of the overhang of stock created by the downturn and the prospects for capital growth now look sound.

While the prime domestic markets of South West London and North West London saw annual growth in 2012 more or less in line with prime central London at 5.0% and 5.2%, prices exceeded the peak of 2007 to a much lesser degree. These markets, without an injection of city bonuses, are becoming increasingly reliant on a spill out of demand from central London.

Fulham, in particular, a good value alternative to neighbouring Chelsea, is showing the impact of rising international demand, with values up 2.8% in the past three months.