London's Luxury Home Values Drop in 2008 by the Most on Record

By Simon Packard

Jan. 10 (Bloomberg) -- Luxury home values in central London fell in 2008 by the most in more than three decades as the worst banking crisis since World War I decimated demand from the city's financial professionals.

The average value of a house or apartment in London's nine most expensive neighborhoods fell almost 17 percent last year, according to Knight Frank LLP, which tracks prices dating back to 1976. Values declined 2.2 percent in December, the ninth consecutive monthly drop in an index that mostly covers homes costing at least 1 million pounds ($1.5 million).

Demand for residential property in the U.K. capital has waned amid a worldwide credit crisis that the research firm Oxford Economics estimates could cost London 60,000 jobs in banking, finance and insurance by the end of 2010.

``The market's fortunes will be driven by economic conditions -- especially those in the City,'' said Liam Bailey, Knight Frank's head of residential research, referring to London's main financial district.

Worst hit so far have been homes worth up to 2.5 million pounds, a segment of the market where values fell 22 percent last year. Homes in that tier are favored by financial professionals who have been hit with job losses and ``fears of further job cuts in 2009,'' Bailey said.

London slipped behind Monaco as the world's most expensive market for prime residential real estate last year.

The number of houses and apartments real estate brokers at Knight Frank sold for at least 1 million pounds last year fell 49 percent from 2007's record to 2,746, a level likely to be repeated again this year, the company estimates.

The fall in values, which began in April 2008, will probably reduce prices by 30 percent by the time the real estate slump ends in the second half of this year.

London-based Knight Frank compiles its monthly index from appraised values of properties in the 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.