London's luxury home prices soar on demand

Luxury-home prices in central London jumped 17 per cent in February from a year earlier, the biggest gain in almost two years, as more buyers competed for a dwindling number of properties, Knight Frank said.

The value of houses and apartments costing more than £1 million ($2.14 million) rose 3.2 per cent from January, the London-based property broker said.

The annual increase was the largest since the market peaked in March 2008 and compares with an 11.5 per cent advance in January. Prices are still 10 per cent lower than the peak.

"The continuation of the growth in prices and the recent increase in the speed of such growth has been caused by a dramatic shortage of supply," Liam Bailey, head of residential research at Knight Frank, said.

The lack of properties for sale, combined with a surge in overseas buyers lured by a weaker pound, helped London's prime real estate perform better than the residential market as a whole. House prices across the country fell last month for the first time in 10 months, Nationwide Building Society said.

Knight Frank registered 10 new potential buyers last month for every additional property it was asked to sell in the centre of the UK capital, twice the average since the broker started tracking the ratio five years ago.

The company now has 30 per cent more new buyers than in any comparable period in the past five years, while it has 22 per cent fewer properties for sale than is normal for this time of year.

The pound's 22 per cent decline against the euro in the past three years attracted purchasers from Russia, Italy and Greece, in particular, Bailey said.

Foreigners bought 45 per cent of properties sold for more than £2 million in the past year, according to the broker.

The broker recently sold a modernised property in Mayfair for near the record price of £3700 a square foot achieved in 2007, Richard Cutt, head of Knight Frank's office in the district, said.

- BLOOMBERG