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• December showed a surprising increase over November with market growth of 1%; a reversal of trend shown in the previous two months.

• Growth on an annual basis continues to slow but at 28.6% is now at a level similar to that last demonstrated in December 2006 (28.7%).

• The slowdown in the quarterly figure appears to have steadied at 1.4% just 0.2% down on the previous quarter.

• The area with the greatest growth rate is the SW region of central London at 1.8%; the greatest increase over the last quarter.

Liam Bailey, Head of Residential Research at Knight Frank commented:

Coming amid largely pessimistic debate about the impact of the international credit crunch, December?s Knight Frank Prime Central London figures of one per cent growth appear to buck the trend of recent months. The quarterly figure also supports the notion that this particular market is steadying with growth slowing just 0.2% to 1.4% over the quarter.

Although the annual growth rate slowed again to 28.6% it is worth noting that this is only 2% lower than January?s year on year rate and almost identical to the figure recorded in December 2006 (28.7%) which at that stage was the highest since June 1979.

The Bank of England?s decision to cut base rates by a quarter point at the beginning of the month may have had an effect in encouraging this upturn, a fact that could be underpinned should the Bank decide to cut rates once again. However the impact of city bonuses may serve as a better explanation for the slight improvement in December?s growth rate, although with the amount of bonus cash given out estimated to have fallen anywhere between 25 ? 50 % in the banking sector alone the impact was markedly less than in previous years.

Of those who did receive end of year bonuses many are thought to have done so in then form of stock. As a consequence they may now decide it prudent to wait until market conditions show distinct signs of improvement before venturing once more into the market.

It would be unwise to suggest that London?s prime market has weathered the credit crunch on the back of these figures. Indeed most indicators suggest that tightening economic conditions will continue and this may well result in job losses across the city. If this is the case it will inevitably lead to property purchase becoming a discretionary as opposed to investment making process.

A key factor that is keeping the market moving forward is the quality of the property available. Purchasers are now much more selective about which property to buy and with supply outstripping demand they are able to demand perfection for their money. Anything that falls short of this is leading vendors to renegotiate on price to achieve a sale.

Across central London - Knightsbridge, Mayfair, Belgravia and Chelsea ? property experienced a return to the growth last seen in September at 1.8%, just before the credit crunch started to bite. One office in the area reported December to be their best month for sales in the entire year with overseas buyers continuing to be the dominant purchasing force. However it is true to say that the lower end of the prime market (between ?3m - ?7m) remained fairly slow.

We are satisfied with our forecast that the prime sector in London will grow at 3% in 2008 in parallel with that for the rest of the property market throughout the UK. However we believe that various parts of the prime market may exhibit little if any growth in 2008. Properties in the super prime sector meanwhile will continue to return the best rates of growth of anywhere between 5 and 10% as overseas investors from countries untouched by the international credit crunch enter the market.

by: Editor

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