London Luxury-Home Price Increases May Slow, Knight Frank Says

June 14 (Bloomberg) -- Luxury home prices in London, the world's most expensive city, may increase at a slower pace this year as more properties come onto a market with fewer buyers, real estate broker Knight Frank LLC said.

The average price of London's costliest houses and apartments probably will climb about 20 percent this year after an almost 29 percent gain in 2006, Knight Frank estimates. That would be the smallest gain since the 8.2 percent advance in 2005.

The number of people who registered with Knight Frank to buy a luxury home in areas including Knightsbridge has dropped 30 percent since March as prices continued to increase, said Liam Bailey, the company's head of residential research, in an interview. In May, prices rose 2.5 percent from the previous month and more than 33 percent from a year earlier, the biggest annual gain since 1979.

`We're turning a corner,'' said Bailey. ``The market's been so incredibly strong that some buyers have sat back to wait and see what happens.''

The prospect of a slowdown follows an 18-month surge driven by bonuses earned by investment bankers, money managers and brokers. An influx of wealthy overseas investors, attracted to London's favorable tax conditions and reputation as a world-class city, have also driven demand.

Price Appreciation

The average price of a luxury house in Knight Frank's monthly index, which draws from seven of London's most expensive districts, is now about 5 million pounds ($9.85 million), with apartments costing 2.5 million pounds. A typical house has appreciated by at least 100,000 pounds, or about four times the average annual U.K. wage, each month since September.

A house worth 100,000 pounds in 1976, when the firm began its survey, would be worth 4.2 million pounds today.

Prime properties sell at 2,300 pounds a square foot, or 5 percent more than nearest rival, Monaco. In New York, comparable homes sell for about 1,600 pounds a square foot and in Tokyo for about 1,100 pounds, Bailey said.

The fastest gains have been for properties in the ``Golden Triangle'' of Knightsbridge, Mayfair and Belgravia, where homes can command 4,000 pounds a square foot.

``Mayfair has doubled in the past 12 months,'' said Paul Davies, an interior designer and developer who also has projects in Monaco, New York and Los Angeles and whose customers include pop star Madonna. ``London is the most international market.''

Overseas Investors

Britain is home to about 68 billionaires, according to an annual survey published by the Sunday Times. Many are overseas investors from emerging economies like China, India and Russia, who have bought homes in London for business purposes as well as the attraction of its security, schools, stores, theaters and restaurants.

A Knight Frank survey of high net worth individuals showed that taxes are the ``single most important feature'' in their choice of where to make a home. Laws allow overseas investors to live in Britain while domiciling themselves overseas for tax purposes to avoid paying levies on their global assets to the U.K.

Brothers Sri and Gopi Hinduja, who own the Hinduja Group with a sibling, last year paid 58 million pounds for a 60-room home on The Mall, according to the Sunday Times. Other overseas residents or home-owners include Norwegian shipping magnate John Fredriksen and Vladimir Kim, chairman of Kazakhstan's biggest copper producer, the newspaper said.

Limited Stock

Foreign entrepreneurs are competing for a limited stock of properties with bankers, hedge fund managers and other finance industry workers who took home record bonuses this year, according to the Centre for Economics and Business Research Ltd.

Next year's bonuses, based on profits generated this year, probably will exceed the record 8.8 billion pounds paid out in 2007 to some 300,000 professionals. That may continue to bolster the realty market, said Jonathan Said, a senior economist at London-based CEBR.

``We can't see prices in London declining for a number of years,'' Said added. ``There's so much activity in London and jobs growth at the top end of the market.''

International Market

The wealth created in London's financial services industry is having a trickle down effect across the city and the surrounding region.

On the St. George's Hill private estate in Weybridge, where Beatles John Lennon and Ringo Starr once lived among rhododendrons and woods 17 miles southwest of central London and 7 miles south of Heathrow airport, prices for mansions have climbed about 20 percent in the past 12 months.

Middle class families, priced out of their neighborhoods of choice in London, are looking at homes they wouldn't have considered a decade ago and gentrifying districts like Wandsworth and Battersea, Davies said.

Because of supply shortages, average house prices in London outstripped gains elsewhere in the U.K. Prices gained 14 percent in the British capital in the 12 months to the end of April, according to government figures. That compares with an 11.3 percent increase for the U.K. overall.

``It always feels we have reached a peak, but then we reach it and push on through,'' said Simon Ashwell, an associate director of real estate broker Savills Plc in Weybridge.

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