The prime London residential market recorded the strongest price growth in the second quarter of 2013 for over a year, defying expectations that values would flatline this year and continuing a period of steady, if unspectacular, capital appreciation.

Across prime London prices rose 2.5% between April and June, bringing annual growth up to 6.6% from 5.5% at the end of the first quarter. But there are significant differences in performance between locations and price bands that reflect differences in buyer profiles, reasons for purchase and their perception of the market, with evidence that some market segments are now looking fully valued.

South West London leads

The strongest growth was seen in the predominantly domestic markets of prime South West London (running from Fulham to Richmond and Battersea to Wimbledon), where values rose 3.2% in the last quarter. Annual growth now stands at 8.5%, much higher than the 4.4% seen in prime central London. Despite reduced city bonuses, these markets are benefiting from wealth accumulated prior to the downturn, new wealth creation, especially from West End hedge funds, and increased buying activity from international buyers working and resident full time in the capital.

At the same time, domestic wealth has resisted a move out of the capital in this recovery cycle, resulting in a concentration of demand in prime South West London and similar markets such as Islington.

The best performing local market has been Fulham, which is increasingly seen as a hybrid between central London and South West London by showing some of the attributes of both markets at a price point between the two. This reflects the fact that it is undergoing a process of ultra-gentrification, attracting international and domestic buyers who, despite significant wealth, have been priced out of the central London market.

Prime Central London stratified

Prime central London values rose by just 1.6% in the quarter and 4.4% year-on-year on average. Here, price growth has become concentrated in the very core locations of Mayfair, Chelsea, Belgravia and Knightsbridge, which are the primary focus of new global wealth.

Other central London markets have remained more reliant on old world money and price growth has become more subdued. Locations such as Kensington, Holland Park, Notting Hill and St John’s Wood have been more sensitive to the effect of stamp duty changes for properties over £2 million than the core central locations. This has focused buyers’ minds on whether certain segments of the market are fully valued at this point in the cycle.

Properties worth over £10 million have outperformed the rest of the market since the beginning of 2005 with values 38% above their pre-crunch levels. For the moment at least, values appear to have plateaued, although transaction levels remain robust.

Indeed, in the first half of the year there were in excess of 85 transactions of properties above this price level, a 30% increase on the same period in 2012, leaving little new build stock in this price bracket available to buy.

Two-tier East of City

In the East of City, the divergence between the markets of Wapping and Canary Wharf continues, with the former seeing annual price growth of 5.8%, compared to 2.3% in the latter.

Whilst this means prices for prime residential property in Canary Wharf have recovered to their pre-crunch levels for the first time, prices in Wapping are some 20% above those levels, having performed much more in line with the prime London market as a whole.

Taken from
Market in Minutes: Prime Regional Residential Markets