Upmarket property agency Savills reports that inquiries from Italian purchasers account for 80 per cent of demand in Kensington, and 70 per cent of demand in London's Knightsbridge area. Demand is believed to be driven by the current tax amnesty in Italy, where the government is attempting to repatriate funds hidden in foreign bank accounts, though current exchange rates also add to the attractions of the London property market as a safe haven.
"Italian applicants have dominated this section of the market," confirms Charlie Bubear, head of the Knightsbridge office of Savills, adding that most are seeking apartments between £800,000 and £2m.
Chesterton Humberts, which operates 25 branches in London, reports that two thirds of buyers in central London are cash buyers, predominantly from overseas. "Italians are the number one dominant group by country, followed by Middle Eastern and French buyers," says managing director Robert Bartlett, who forecasts that London house prices will jump by 22 per cent between now and 2013.
London's foreign-fuelled property boom began in March, tallying with Halifax House Price Index reports that average prices have increased 7 per cent in the last 6 months.
"It is really hard to justify the improvement in prices," says Ed Stansfield, property economist at Capital Economics. "London has been the biggest driver of the upswing, with much of the recovery coming from superprime areas. But can those figures be generalised into a reliable national picture? What we are seeing is a very thin market being driven by an unusual group of individuals."
Forecasting a 10 per cent drop in house prices next year, he adds: "The market remains fundamentally overvalued for normal everyday folk. What Mr and Mrs Average can afford will determine where prices really go."
The Royal Institution of Chartered Surveyors believes lack of stock is the biggest challenge, with low interest rates curbing forced sales, and shallower equity levels acting as a brake on normal selling activity.
"Activity has picked up, but from a low base," reports its chief economist Simon Rubinsohn. "Next year, we think it will be difficult to get transactions levels up by the amount seen in 2009. Banks will not go back to the lending criteria of a few years ago."
