London's real estate bubble fears overblown?
Concerns of a real estate bubble in London are overblown, according to experts, who argue that recent price rises are "entirely understandable" given the city's supply and demand dynamics.
It comes amid growing anxiety about the rising cost of real estate in London – which is rapidly outpacing the property market elsewhere in the country – as foreign buyers drive demand.
But Tim Murphy, CEO and founder of property investor IP Global – which has invested around £400m ($655 million) in the London property market over the last three years – dismissed the concerns.
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"People worry about the London property market – for my money completely unnecessary, when you look at the low supply levels and the amount of money here," he told CNBC.
Prices in London have risen by around 10 percent over the last year, according to Nationwide's House Price Index, to an average of over £331,000. By contrast, prices in the U.K. as a whole are up by just 4.3 percent at around £170,900.
London needs 50,000 new homes a year to fulfill demand, according to Savills real estate agency, with the city's population expected to grow by 1 million by 2021.
Murphy's comments come after Knight Frank's Global House Price Index revealed that Dubai, China and Hong Kong are the fastest growing property markets in the world. Prices were up 28.5 percent, 21.6 percent and 16.1 percent respectively over the last 12 months, according to the figures published Friday.
Whereas the U.K. – with house prices rises of just 4.3 percent over the period – ranked 25th on the index of 55 countries.
The price hikes in London have been supported in part by a lack of supply and seemingly unstoppable demand from foreign buyers, who are continuing to snap up available property. Purchases by foreign buyers accounted for 49 percent of central London property buys over the year to June 2013, according to estate agency Knight Frank, with 28 percent of these buyers not resident in the U.K.
Murphy said he expected this trend to continue: "I think the Asians and others from around the world will continue to come here. (Prices have) doubled every 10 years since the Second World War. It's very stable, borrowing is very strong."
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"It's still relatively tax efficient… There's a lot of money coming into the system by foreigners buying it," he added.
Liam Bailey, Knight Frank's global head of residential research, also played down concerns of a bubble, and was quick to point out differences between the "prime central London" (which includes the much-sought-after Mayfair, Belgravia and Kensington postcodes) and Greater London markets.
Prices in central London rose by just 6.9 percent in the year to November – the slowest growth rate in almost four years– according to Bailey. Instead, a pick-up in the Greater London market was behind the headline London price rise figure.
"We're not concerned about a bubble in either market," Bailey told CNBC. "The central London market recovered very strongly, but we're now seeing price growth slow down and bubble conditions aren't present."
And Greater London price rises were "entirely understandable" in terms of supply and demand.
"Supply is still not close to peak levels, whereas demand is very strong. Plus, rates are low and mortgages are relatively affordable," Bailey said.
But despite this reported slowdown in prime Central London property, a five-bedroom apartment in the One Hyde Park complex in London sold for close to £27 million this weekend.
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IP Global's Murphy said the apartment was overpriced, but David Adams, managing director of John Taylor luxury real estate agents which sold the property, disagreed.
He said the sale price was appropriate for the apartment in what he described as "arguably London's most prestigious address."
"I think it (the sale price) was the value of the property. Two buyers were competing for the apartment, which was the only park-side property on the market," he told CNBC.
Bubbles brewing elsewhere?
But Adams admitted that he did have concerns about a property bubble in London – albeit not yet.
"There is a risk of a housing bubble in London because government policy is creating a situation where demand is massively exceeding supply," he said.
"We're not there yet, but looking ahead, the current rate of growth is just not sustainable."
Murphy, however, stressed that there were other regions where property bubbles were more of a concern.
"If you look at what they're trying to do in Singapore, Hong Kong, even China – they're much more nervous about property markets," he added.