London overtakes Hong Kong as costliest city for new homes

London has overtaken Hong Kong as the world's most expensive city to buy prime property, according to a global survey.

The average price for new homes in prime areas in Hong Kong stands at US$3,290 (HK$25,662) per square foot while in London, it is US$3,380 per square foot, according to the survey by international property consultant CBRE. New York ranks third, with the average price at US$3,040.

"Today, Hong Kong home prices are the highest we have ever seen. The government should review if its cooling measures are effective in curbing home prices," said Simon Lo Wing-fai, an executive director at Colliers International's research and advisory division. But Lo said he was not worried about the property bubble bursting anytime soon. "Yes, buying a flat in Hong Kong is expensive. But I do not see banks exposed to high lending risks as most new flats are bought by end-users."

The government, he said, should focus on increasing land supply to meet growing housing demand.

Hong Kong, however, could regain its No1 position next year as home prices are on an upswing again, surging to a fresh high last month.

Centaline Property Agency said its latest Centa-City Leading Index, which tracks secondary home prices at 100 housing estates, rose 0.23 per cent week on week to 130.46 last week. The index has risen 9.6 per cent so far this year to a record high.

Wong Leung-sing, an associate director of research at Centaline, said he expects the index to rise to 136 in the first quarter of next year, translating into another 5 per cent increase in home prices. "But we see a slower pace of growth now," he said.

The "Global Living Survey: Global Cities Compared" looked at residential prices in 10 key global cities favoured by high-net-worth individuals. The cities outside the top three are Paris, Sydney, Singapore, Tokyo, Los Angeles, Mumbai, Milan and Rome.

Hong Kong and London usually rotate between first and second places in the rankings, according to CBRE's earlier internal findings. This is the first time it has made the report public.

Marcos Chan, head of research, CBRE Hong Kong, Macau and Taiwan, said: "There have been price rises in the mainstream markets, reflecting strong pent-up demand buoyed by speculation of further easing from the government - including favourable stamp duty for first-time buyers and low lending rates. Improved sentiment related to recent capital market activity has also boosted the property market."

But property consultancy Savills has a different take when it comes to the luxury sector.

"The outlook for luxury home prices remains uncertain as buyer's stamp duty, double stamp duty and special stamp duty cool transaction volumes," said Simon Smith, Savills' head of research and consultancy, adding that prices in 2015 will be stable.