The prime property market in London is staging a strong recovery after a lacklustre 2003, according to Knight Frank's figures for March this year.

London prime property prices rose by 0.5% in March this year, bringing the total rises this year to date to 2.5% . The largest price rises are at the very high, £2 million+ end.

This robust recovery contrasts strongly to the –1.9% price fall seen over the whole of 2003. Annual prime property inflation is currently running at +3.7%.

Over the last six months, and particularly so in the first quarter of this year, foreign investors (typically American or Russian), and a renewed interest from City bankers as a result of higher bonuses, have helped push prices up at the top end of the London property market.

Luxury end of market exceptionally strong

Prices at the very top end of the market are showing the strongest gains with £3 million+ properties rising by 1.3% in March, and properties between £2 million and £3 million rising by 1.2%, over twice the average London prime property average of 0.5%.

For the first Quarter 2004 properties over £3 million have risen by a substantial 3.5%, implying average rises of well over £100,000 over the past three months. For properties between £2 million and £3 million the price rises have been an even higher 4.7% for the first Quarter. These high value changes must however be seen in the context of higher than average falls experienced during 2003.

Americans make a significant comeback

32% of buyers of London prime property are foreign nationals. 12% are North American and 14% are European, including Russia.

Americans have made a significant comeback to the London market after being largely absent last year. North American citizens accounted for only 1% of buyers in the first half of 2003, and 6% in the second half. In the first quarter of this year

Americans accounted for 12%, a more typical percentage for the market prior to September 11th 2001.

69% of sellers were UK citizens in the first quarter of 2004, down slightly from 73% in the second half of 2003. American sellers accounted for 11% in the first quarter, up from 7% in the second half of last year.

Liam Bailey, Head of Residential Research at Knight Frank, comments: “Over the last six months, and particularly so in the first quarter of this year, foreign investors (typically American or Russian), and a renewed interest from City bankers as a result of higher bonuses, have helped push prices up at the top end of the London property market.”

“With more significant City bonuses being paid out currently, and with employment prospects improving, buyer confidence is set to continue this year. Price growth in the second quarter may be expected to match or slightly exceed that seen in the first quarter, though it is unlikely that such growth rates will be sustained in the second half of the year as more stock enters the market and anticipated interest rate increases occur.”

Noel Flint, Partner at Knight Frank’s Sloane Avenue office, says: “The performance of the top addresses reflects the strong demand from both UK and overseas purchasers for quality property in the best addresses. Chester Terrace and Regents Park on the whole have faired particularly well.”

“Overseas purchasers are now putting Regents Park on their wish list, whereas previously they have shied away because of the comparatively short leases. The Crown Estates policy to extend these leases to 150 years has alleviated those concerns so that Regents Park is now back on the map.”

“Elsewhere, a number of Mayfair streets are performing particularly well, with an increased supply of quality developments, as are houses located in the garden squares within Kensington and Chelsea.”

“With no sign of the shortage of quality property for sale relaxing, the likelihood is that prices for properties in the best addresses will continue to rise during the course of 2004.”