London property seen as a safe haven by China, Middle East buyers

Chinese and Middle East investors are currently the dominant buyers of London residential real estate, while Russian investors are renting, according to Knight Frank.

The safe haven appeal of prime central London property continues to underpin demand, despite economic volatility centered on China and other geopolitical concerns around the world, according to a Knight Frank 'Super-Prime London Insight' January report.

Investors in the Middle East are also looking to diversify their holdings and London is seen as an important market, said Andrew Hay, global head of residential at Knight Frank.

"They're looking to invest in a wide range of assets, a wide range of territories, and U.K. property market (both commercial and residential) is a very good sector for them, along with Germany, United States and other locations," Hay toldAsia Squawk Box.

According to Knight Frank's January report, new super-prime developments in Kensington and Mayfair are some of the best residential schemes in London. Super-prime property refers to real estate valued above $14.32 million.

The two areas have seen some eye-popping transactions. The highest price so far for a property in Knightsbridge is $11,460 per square feet and $5,730 per square feet in Mayfair, an exclusive part of West London, reported Knight Frank.

Overall in London, new-build super-prime property segment has grown from a fifth of total super-prime property transactions in 2012 to one-third in 2015, the report showed.

Hay told CNBC that while Russian investors are still prominent in the London property market, "they're not buying, they're renting."

"I think [the Russians] are biding their time, waiting to see how things pan out back home while they taking a cautious approach," said Lord Hay, referring to the oil-related economic downturn faced in Russia, Western economic sanctions and the fall of the ruble.

Hay reckons that investors' demand is concentrated in fewer property markets.

Rob Stothard | Getty Images

"If you look at places like Hong Kong or Singapore, the costs of acquisitions have become incredibly expensive and that has moved people's interest elsewhere" while other markets are not as strong because investors are nervous of them, he said.

An exception is London, where residential property demand continues to grow, in spite of the stamp duty introduced end-2014 which is set to increase another three percentage points in April 2016.

He explained that "London is attractive [but] it's not a yield play, you'd be chuffed if you get 3.5 percent," said Hay.

"There are many more aspects to the investor's psyche than that, such as the safe haven [aspect], transparency, education and lifestyle," he said.

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