BuzzBuzzHome Corp.
April 26, 2011

The big story this week in the UK is, of course, the wedding of that dashing young royal couple, William and Kate. But there’s another story that will continue to be much discussed long after the pomp and ceremony of Friday: the London real estate market.

Brett Arends, an award-winning financial columnist wrote in a blog post earlier this month that “what’s happening [in London] is absolutely ridiculous.” He continues, “According to an index maintained by high-end real-estate firm Knight Frank, prime central London prices are nearing and may even be surpassing the giddy levels seen at the peak a few years ago. The brokers’ windows tell the same story.”

Most experts agree that the root cause is London’s reputation as, for lack of a better term, a safe port in a storm. An increasingly tumultuous political climate in the Middle East, for example, has effected higher than normal investment in London by the super-rich of Egypt, Syria, and even southern Europe over the recent months.

Courtesy Frank Knight Int.

Arends quotes Robin Hard, an analyst at at London investment firm, Peel Hunt, who said “London property is the ‘Swiss bank account’ of the 21st century. Rich people in places like Egypt, Syria and southern Europe are rushing to get their money away from the turmoil, and for want of a better alternative, they are plunking it down in the ‘millionaire’s playground’ of central London.”

There are factors, too. London is now the undisputed centre of European (and some say, global) finance and the concomitant influx of wealth obviously pushes demand up. Increased demand, for its part, runs into London’s strict zoning laws that make new developments rare.

Arends also suggests a number of reasons why those who think the bubble will never burst should pause and rethink. He argues that the international elite may not always keep their central London property. Most residences are unused for much of the year. Further, as the central neighbourhoods become a playground for the very rich, the city’s vitality is being sucked towards outer boroughs – never a good sign. And lastly, today’s low interest rates are certainly not guaranteed to last. Other factors, like plunging rental yields are also ominous signs, argues Arends.

So it seems clear that after the royal wedding party fades away, the London real estate party will rage on – though not, perhaps, indefinitely.

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