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London home prices rise as weak pound fuels foreign buying interest

Housing values in London approach average of £500,000 as overseas investors converting cash into sterling enjoy a boost in buying power

PUBLISHED : Wednesday, 20 March, 2013, 12:00am
UPDATED : Wednesday, 20 March, 2013, 5:22am

London home sellers raised asking prices this month as the weakness of the pound fuelled interest from overseas buyers during the spring selling season, according to Rightmove, a property-website operator.

Prices sought rose 1.9 per cent from last month to an average £496,298 (HK$5.8 million), Rightmove said in the report. Asking prices in the capital have surged more than £41,000 in the past year and are now pushing close to £500,000. Nationally, average prices rose 1.7 per cent this month from February.

The pound has dropped against the euro and the greenback this year and is the second-worst-performing developed market currency, according to data compiled by Bloomberg. For foreign buyers, Rightmove said the decline had wiped out the 9 per cent increase in property prices in the past year and that "sterling's loss is London sellers' gain".

"Overseas buyers transferring their dollars or euros into sterling have found their buying power boosted," said Miles Shipside, a Rightmove director. "Many new-build developers have been mining this rich seam of overseas cash very successfully."

Gains in London this month were led by a 6.2 per cent surge to a £2.3 million average in Kensington and Chelsea, the city's most expensive district. Lambeth rose 6 per cent, while Westminster increased 5.8 per cent.

Part of the increase was due to supply failing to keep up with demand, according to Rightmove. It said that 16,349 new properties were put on sale this month, 12 per cent lower than the same period a year ago.

Nationally, asking prices for homes had risen 1.2 per cent in the past year, the report showed. The average price in March was £239,710 and Rightmove said "growing belief in price stability" meant transaction volumes might increase this year.

While cautious lending may limit the housing recovery, Shipside said there was "now a bedrock upon which confidence and momentum appear to be building".

Consumers' discretionary spending power shrank 1.1 per cent in February after falling 1.2 per cent in January, Lloyds TSB said in a separate report.

Britons do not expect Finance Minister George Osborne to announce measures to provide assistance in his budget statement today, according to the report.

"Consumers don't expect any relief from the budget, and the recent fall in the exchange rate is likely to add to pressures," said Patrick Foley, chief economist at Lloyds. "Consumer spending is therefore likely to remain weak through the first half of 2013."