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London prime 'to stagnate'

07/12/2007

London will stop leading the UK property market in 2008, property consultancy Knight Frank believes.

Its monthly prime central London index forecasts growth in line with house prices across the UK next year, with house prices stagnating across large parts of the prime market.

This represents a significant shift from the last two years, when the capital's strong growth in market values proved a harbinger for the wider residential market in Britain.

Already the London market is reflecting the slowdown underway throughout much of Britain. Annual growth slipped to 30.6 per cent in November, down from 34.1 per cent in October.

"While price growth at this level was unsustainable and a moderation was overdue, to use a tautology the crunch hastened the slowdown," Knight Frank said.

"The new market sentiment means that vendors have to compete much harder to achieve timely sales, and ambitious pricing has effectively ended across the prime and mainstream markets."

Although London's prime market reflects the economy's wider slowdown, the influx of Russian buyers of recent years means prices in the super-prime sector continue to be sustained.

Even this market, however, appears vulnerable if wealthy foreign residents are put off by changing conditions. Recent tax changes and the slowing economy could prove negative factors driving non-domiciles away in 2008, Knight Frank fears.