Mainstream London properties are now outperforming those in prime areas, research shows.
Data from Savills World Research looking at growth in cities across the world, revealed London remains the third most expensive area for prime properties at £1,330 per square foot, behind Hong Kong at £3,000 and New York a £1,180.
But the English capital saw prices drop 3.3% last year.
In comparison, values in mainstream residential areas of London were up 2.3% in 2017 to £740.
This left it at 26 out of 35 cities around the world in terms of growth for mainstream properties and in 29th when it came to prime properties.
Chinese city Chongqing was the biggest riser in both mainstream and prime areas. Values were up 58.9% in Chongqing to £123 per sq ft, and 48.5% in prime areas to £210 per sq ft.
Yolande Barnes, head of Savills world research, said: “Prime values rose first and fastest after the global financial crisis, but some are now hitting a high plateau. It’s now the turn of the mainstream markets to play catch up.
“Prime residential markets around the world reacted quickly to quantitative easing by central banks and the consequent yield shift in line with low interest rates. This was a one-off yield shift and expectations are that central banks are moving towards raising rates, reducing the potential for price growth.
“Importantly, while some cities have recorded small falls, we generally don’t expect these to become significant, but we do expect prices to remain relatively stable, on a high plateau for some time, though we will continue to see volatility in oil dependent economies, for example.”
It comes as buying agents at the SP Property Group reported a surge in would-be buying clients turning to the prime London rental market, especially in the £5,000 – £10,000-per-week bracket, as a short- or medium-term alternative to buying.
With minimal capital growth forecast for the next two to three years, SP Property Group said it is advising clients to purchase for a minimum of five years, otherwise it doesn’t warrant the high transaction costs of buying.
With uncertainty around political and personal circumstances, would-be buyers are taking fewer risks because they need flexibility.
Jo Eccles, managing director of SP Property Group, said: “The rental market in London is very competitive at the higher end as a result, and we are working on behalf of a number of high net worth individuals who would typically buy but are seeing renting as a more commercial alternative.
“They can rent a home for three years and still be significantly better off financially than if they were buying for this short period of time.
“In many cases our rental clients have been searching for a property themselves but either can’t find a high enough specification property to rent, or they are missing out on properties because of competition from other tenants.
“With limited stock in this price bracket in immaculate condition, we are speaking to developers or sellers who are agreeing to rent out their properties instead of selling them in the current softer sales market.”