London property – the ultimate investment?

Telegraph logoIs London property really a recession-proof asset – and could the effects ripple out to other areas in the rest of Britain?

That is the question asked by UK newspaper The Telegraph in an article published this week.

Telegraph journalist Emma Simon asks: “Is investing in property in London the nearest thing you can get to a safe bet?”

Simon goes on to say: “Property prices in the capital keep rising, despite wider problems in the housing market.

In fact the gap between property values in the capital and in the rest of the country is now wider than ever, according to new data from estate agents Savills.

London property prices used to be seen as a bellwether for price movements in the rest of the country, with prices in the capital rising or falling first, and usually by a far larger margin. But this no longer seems to be the case.

Over the past five years the London market has not only outperformed the national average but been moving in the opposite direction. House prices in the capital have risen by 6pc over the period while elsewhere they have fallen by 11pc, according to the estate agents Knight Frank.

The differential becomes even more stark when you look at price movements in London’s most expensive residential boroughs. House prices in Kensington & Chelsea, for example, have risen by 37pc over the past five years. Prices in such prime areas show a closer correlation to prime regions in global cites such as New York or Hong Kong than to prices in Newcastle upon Tyne, say.

“It is the strength of demand from overseas buyers that has driven up prices in central London boroughs and underpin this market,” said Lindsay Cuthill, the head of Savills Fulham. “Prime areas – like Chelsea, Westminster, Hammersmith, Camden and Fulham – have a relatively low correlation with the rest of London, let alone the rest of the country, suggesting they really are in a world of their own.”

London may be insulated to a degree from the problems affecting the wider housing market, such as the availability of mortgage finance or a lack of first-time buyers causing problems in the housing chain. Your typical Russian oligarch isn’t in his local Halifax branch quibbling about the deposit needed. But this doesn’t mean that the prime regions exist entirely in their own bubble.

The strong price rises in these locations have had a knock-on effect on other inner London boroughs and key commuter towns. Andrew de Candole of de Candole Residential said: “There has been a ripple out to some outer London postcodes and along the commuter belt. Most of these sales have come from UK home owners selling to overseas buyers, then buying elsewhere.”

Not everyone is convinced that London house prices are completely divorced from wider market forces, however. Martin Ellis, a housing economist with the Halifax, pointed out that many outer London boroughs, such as Enfield, saw prices rise by just 1pc last year, while Barking & Dagenham saw prices fall.

He said the big divide wasn’t London versus the rest of the country but the split between house prices in the North and South – a gulf that has widened since house prices started to fall in 2007, reflecting the relative economic strength of each in the wake of the recession.

“London has led the way in terms of house prices in the past few years, but the rest of the South of England has also generally fared well,” Mr Ellis said.

To read the full article, click here.

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