Prolonged demand from overseas investors has maintained the upward pressure on house prices in central London, which are now 16 per cent above their 2007 peak.
The performance of London’s residential market partly reflects a larger proportion of equity rich buyers who are not mortgage constrained. South East Asia continued to be the primary source of demand for new-build residential in central London, but buyers from the Middle East are beginning to return. Middle Eastern buyers made up 16 per cent of prime central London sales in the last quarter of 2011, up from 3 per cent in the first quarter of 2011.
Mark Collins, Head of Residential, CBRE, said:
“Whilst South East Asia buyers are still vital, the Middle East is increasingly becoming a source of strong and growing demand for London residential. There has been a steady flow of capital into the Middle Eastern financial centres and we anticipate that a significant proportion will end up in London residential.
Undeniably, the low value of sterling is a key driver behind the strong demand. Over the last four years, the pound has fallen by 32.5 per cent against the Saudi Riad for example, effectively discounting property prices by a third.”
Concerns have been raised that demand for homes over £2m could be dampened by the introduction of 7 per cent stamp duty and the new 15 per cent rate for buyers purchasing through Special Purchase Vehicles (SPVs), which overseas buyers traditionally use.
Mr. Collins continued:
“Buyers at the top end of the market will clearly review their investment strategies, which could cause some stickiness, but the merits of the London market outweigh the tax disadvantage because it is a safe haven for stable long-term investments. It is also worth noting that the introduction of a 5 per cent threshold on homes over £1m last year did not have a material impact on the market. However, the implementation of the higher rate could cause an increase in demand for homes under £2m as buyers seek to avoid the higher rate of tax altogether.”
