London Luxury Homes Register First Annual Price Fall in 5 Years

By Simon Packard

Aug. 29 (Bloomberg) -- Luxury-home values in central London, the world's most expensive location for prime real estate, registered their first annual fall in five years as buyers were deterred by signs the economy may enter a recession.

The average value of houses and apartments in London's nine most expensive neighborhoods dropped 1.6 percent from August 2007, broker Knight Frank LLP said today in a statement. Values fell 1.3 percent from July, the fourth consecutive monthly decline.

Luxury homes in London, except those costing more than 10 million pounds ($18.4 million), have followed the slide in prices already experienced elsewhere in Britain as banks curb lending, shed staff and cut bonuses. Average U.K. home values dropped 10.5 percent this month from a year earlier, the largest decline since the final quarter of 1990, according to a report released yesterday by lender Nationwide Building Society.

Home-buyers are being affected ``by pessimism in the financial services sector, particularly relating to the size of this year's bonuses,'' Liam Bailey, Knight Frank's head of residential research, said in the statement.

More than 300,000 people are employed in financial services in London and their appetite for expensive homes has slackened as employers eliminate jobs and lower bonus payments. Some 10,000 jobs may be lost in the next three years, Experian Group Ltd. estimates, as banks around the world have incurred mortgage losses and writedowns exceeding $500 billion.

Homes worth less than 1 million pounds are the most affected, with appraised values down 9.2 percent from a year ago, because prospective buyers still rely on mortgages to make purchases, Knight Frank said.

``Super-Prime'' Values Rise

Properties worth more than 10 million pounds gained 2.9 percent from July, or 19 percent more than a year ago, on demand from wealthy overseas investors who are little affected by borrowing constraints, Knight Frank said.

Such ``super prime'' properties ``have proved immune from the downward trends elsewhere,'' Bailey said. ``There are now signs that the gap between this sector and the rest of the market is growing.''

Knight Frank compiles its monthly index from appraised values of representative properties in Mayfair, St John's Wood, Regent's Park, Kensington, Notting Hill, Chelsea, Knightsbridge, Belgravia and the South Bank neighborhoods of London.

To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net.