30 September 2014
While most of Europe struggles to recover from the economic crisis of the past few years, the market for luxury real estate in London is booming – so much so that apartments in the tony Knightsbridge district average £3.27 million, not far short of the £3.43 million in Fontvieille, Monaco’s most expensive area.
Given the absence of a spectacular sun-drenched coastline and freedom from income tax in London, this suggests property prices are rocketing out of line with economic fundamentals.
According to Christie’s International Real Estate, a subsidiary of the famed auction house, 10 of the world’s biggest real estate markets (Cote d’Azur, Hong Kong, London, Los Angeles, Miami, New York, Paris, San Francisco, Sydney and Toronto) between them saw 41,700 sales of properties worth $1 million-plus last year, a 19% jump from 35,000 in 2012.
With London high-end real estate prices up nearly 30% in the past two years, and less luxurious suburbs not far behind, soaring property prices have become a political issue. The opposition Labour Party has proposed a "mansion tax" that would impose additional property levies on homes worth more than £2 million.
Other critics say a boom driven by exiled Russian oligarchs and other members of the global ultra-rich is making the city too expensive for ordinary Londoners. The city has just overtaken Hong Kong as the world’s most expensive city in which to live and work, according to real estate firm Savills.
Three quarters of the businesses surveyed by lobby group London First say the shortage and cost of housing have become a significant risk to the city’s economic growth. Under-supply is a key factor – the population is growing by 100,000 people a year, but the number of homes being built is less than half what is needed to accommodate them.
The bursting of the last UK home price bubble contributed to the near collapse of many of the country’s biggest banks, and economists fear that history could be about to repeat itself. But in the meantime, the champagne corks pop and the party goes on.