Prices for prime central London properties rose for the fourth month running in July, according to a London residential index released by a leading global independent property consultancy firm.

The July results in the Knight Frank Prime Central London Residential Index points out that overseas buyers in the GBP1million+ ($1.67 million) market have grown their market share from 35 to 43 per cent over the past 12 months.

July’s rate of growth marked 1.5 per cent, indicating that the annual rate of price change has moderated to -14.4 per cent.

The recent market revival has been led by Chelsea and Kensington, where prices have now risen by more than 6 per cent since the low reached in March. Houses have again outperformed flats, with growth of 1.9 per cent in July meaning that prices are only 18 per cent below the March 2008 peak.

Relatively weaker performance for flats has resulted in their prices standing almost 21 per cent below peak levels, despite a 1 per cent revival last month.

Price band performance is similarly divided, with the sub-GBP2.5 million bracket seeing prices rise by more than 5 per cent in the last three months, compared to only 3.9 per cent for the GBP10 million+ bracket.

“It has been another strong month for the prime London residential market, with prices up across every sub-market, by area, price band and property type,” said Liam Bailey, head of residential research, Knight Frank.

'While the UK market has seen a similar bounce in recent months – the prime markets appear to be leading the market by some margin. Rising prices in central London stem from three fundamental issues - returning confidence, resilient demand and plummeting supply,” he added.

“One factor underpinning all else is the fact that prices fell very hard and very fast a little more than six months ago. Partially due to the panic engendered by the Lehman's collapse, prices slipped 15 per cent in the five months to January this year,” Bailey continued.

“By the early summer property in London was perceived to be offering very good value.
“A key attribute of the central London market has been shown up during the current downturn is the strength of demand. Confidence in the market is witnessed by the growth of applicant demand, up 37 per cent year-on-year in the second quarter.

“Overall demand growth is important, but we ought to also consider the composition of this demand. UK buyers within the £1m+ market in London have typically comprised c65 per cent of the market in recent years. In Q2 this year this share dropped to 57 per cent.

“The three biggest overseas markets in Q2 2008 were European (37 per cent of all overseas buyers), Russian (19 per cent) and North American (13 per cent). In Q2 this year these figures slipped (to 34 per cent, 14 per cent and 10 per cent respectively) as we saw a doubling in the proportion of overseas demand from Africa, Asia, Australia, China, the CIS (Kazakhstan, Azerbaijan and Uzbekistan), and the Middle East.

“The final element supporting prices has been supply. For some time estate agents have been complaining about a lack of available stock. This issue is now becoming critical to the performance of the central London residential market.

“The volume of properties available in central London in July was down 34 per cent compared to the same month a year earlier. The number of properties coming forward for the autumn market is showing no improvement – with the pipeline of new properties coming to the market down 42 per cent over the same period.

“Coupled to the fact that the prime markets in London have seen a virtual cessation of new development, new starts were down 60 per cent in Q2 year-on-year, it appears that tight supply will be with us for some time to come.

“We can never discount the possibility of further price falls later in 2009 or even next year. While the UK economy