London Luxury Buyers Grow Wary

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Prices for London's most expensive homes continue to rise, but there are signs that buyers are starting to balk at the inflated prices, a new report suggests.

Knight Frank's Prime Central London Index increased a slight 0.3 percent in May from the previous month, the firm reported today. Prices are up 3.2 percent from the start of the year and 7.2 percent from a year earlier.

But there is "growing evidence that buyers are less willing to commit to homes with over-ambitious price tags," Knight Frank said in its report.

A boost in sales in the fourth quarter was largely evident in the relatively budget-oriented under-£2 million segment, which posted a 28 percent rise in sales.

"The strength of the sub-£2 million sector provides one indication that buyers are becoming more price sensitive," said Liam Bailey, global head of Knight Frank residential research. "There is a discernible shift in the market, with anecdotal feedback confirming that buyers are willing to agree to purchases, but only when prices are realistic."

There were actually "modest price" falls in Belgravia and Knightsbridge in May, despite strong demand, Knight Frank reported.

But, overall, buyers are still flocking to London's most luxurious homes. Prices in London priciest neighborhoods are 58 percent higher than the market low in March 2009, Knight Frank says. There was a 17 percent jump in sales in the first four months of the year compared to a year earlier, and the number of new applicants was 40 percent higher.

Foreign buyers continue to drive sales, with a "widening of demand" from different countries. For example, Knight Frank has seen a 23 percent increase in searches from Turkey compared to a year ago, and Turkey's overall market share has risen from 0.6 percent of all prime central sales to 1 percent.