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Is London’s property rally different this time?

An employee walks through the lounge of a residential housing development for sale in the Chelsea district of London, U.K.
Jason Alden | Bloomberg | Getty Images
An employee walks through the lounge of a residential housing development for sale in the Chelsea district of London, U.K.

The London property market's rush higher may not end in tears anytime soon despite an over 60 percent rally since 2009 and concerns a bubble may be forming.

"Certainly, there's a lot of speculation (about a bubble) given the growth in values we've seen over the last couple of years and this surge in demand, particularly from Southeast Asian buyers," Tom Eshelby, residential director at Land Securities, told CNBC.

But he added, the supply-and-demand situation in prime central London's luxury end is favorable, with limited new supply and ever-increasing demand from around the world.

(Read more: Singapore's wealthy help drive global property demand)

"London seems to have taken on a bit of safe-haven status over the last few years for investors around the world," Eshelby said, leading to an uptick in buyers.

He doesn't expect rising interest rates will affect these buyers much. "Whilst they may use finance to purchase, they probably aren't reliant on that finance," he said. "Their focus is really more on capital growth," he said, noting the segment also doesn't see much flipping of newly purchased units.

He expects an average 5-6 percent price growth a year over the next five years. "I do think that's at a sustainable level of growth," he said.

(Read more: Where's the next property bubble building?)

In London, the average home price came in at 393,462 pounds in September, according to data from the Land Registry, up 1.9 percent from August and 9.3 percent from September 2012. The average property value in England and Wales was 167,063 in September, according to the data.

In cental London, the average price in the Westminster burough was 829,251 pounds in September, up 3.8 percent from September 2012, while properties in Kensington and Chelsea averaged 1.17 million pounds in September, up 7.5 percent from September 2012.

Global real-estate consultancy Knight Frank also doesn't expect central London's property prices to hit a speed bump any time soon.

(Read more: Canary Wharf to get Europe's tallest residential tower)

While the segment's prices are already above their early-2008 pre-financial crisis peak after rising over 60 percent from their March 2009 post-crash low, "price growth will continue," it said in a report.

Knight Frank expects prices may stall in 2015 in the uncertainty surrounding the run-up to the U.K. general election, but it forecasts they will still outpace inflation.

It projects prime central London prices will rise 4.0 percent in 2014, stall in 2015, before resuming their rise at around 5.0 percent a year, for 20 percent cumulative growth by the end of 2018.

(Read more: China's appetite for offshore prime property booming)

"We expect strong domestic and international demand to continue to support price growth in central London," it said. But it added, prime central London may no longer lead price gains ahead.

Certain areas of London may see property prices outperform due to the launch of the Crossrail service, it said.

"As the opening of the high-speed service approaches, we foresee prices in and around central London stations gaining extra momentum," it said.

(Read more: Overseas spree on luxury London property chokes local business)

"There will instead be a 'doughnut' effect, as prices in the 29 boroughs surrounding the prime London core begin to accelerate at a faster pace," the report said. "The sheer demand to live in or around London, coupled with the lack of supply in the Greater London area, will underpin this price growth."

Much of the fresh demand may be domestic, it said, noting the London area's relatively brighter outlook compared with the rest of the U.K.

It forecasts prime outer London prices will rise a cumulative 23.0 percent by the end of 2018.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter@LeslieShaffer1

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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