Prime locations

Economic conditions drive market fortunes

According to the Knight Frank Prime Central London Index, the number of £1 million plus sales of London homes was down 49 per cent in 2008. Properties costing £1 million to £2.5 million have been hit hardest and are 22 per cent down on their March 2008 peak.

Prime prices dropped by an average of nearly 10 per cent in the final quarter of 2008 and have fallen 18.4 per cent since March. Houses worth over £10 million plus are down by 8.1 per cent from their August 2008 peak, but they are now falling in line with the rest of the market.

Head of residential research at Knight Frank, Liam Bailey, said, “Prices continued their ongoing downward slide during the final month of 2008. Prices for the best properties in the capital are now almost 20 per cent below their peak in early 2008. Our view that the market will see a 30 per cent peak-to-trough fall in value looks likely to be borne out.

“The market worst affected by the price falls is the £1 million to £2.5 million sector, the so called ‘entry-level’ prime market, which has seen prices fall by 22 per cent from the peak."

Hit mostly by actual job losses and fears of further job cuts in 2009, Mr Bailey, explained this segment of the market had been favoured by city workers and other salaried professionals. There was also little respite from the bad news across any of the central London markets, with prices falling for flats and houses from Canary Wharf across to Chelsea.

"The only bright spot appears to be that the rate of price decline is beginning to slow, with the 2.2 per cent fall in December the smallest drop since September 2008," he said.

“Despite the slowing rate of price falls, it is too early to say that the market is turning a corner. The number of new properties coming to the market in December was slightly higher (1 per cent) than the same month a year earlier, however the number of properties sold was down by 44 per cent over the same period.

“Our estimate is that the total number of £1 million plus sales in the whole London market was down 49 per cent in 2008 compared with 2007, with only 2,746 taking place in 2008, compared with a record 5,386 in 2007."

Looking forward into 2009, Frank Knight predicts the market's fortunes to be driven by economic conditions, especially those in the City.

"We are still holding to our forecast of a 30 per cent peak-to-trough price adjustment, suggesting that by the spring we will be fast closing in on the low point of the market in terms of pricing," Mr Bailey said.

"In terms of sales volumes, 2009 is likely to be as weak as 2008, with £1 million plus sales at or below 3,000 in Greater London, well below the level we have got used to in recent years.”