Luxury property values up in London as prices fall elsewhere

According to the firm's quarterly Prime Global Cities Index, the average price of luxury homes in the world's major cities fell by 0.4% in the first quarter of 2013. Cities in Europe performed particularly badly in the survey, with prices falling on average by 2.3% since December 2012. At the same time, average prices in London rose by 2.2%.

The annual change in luxury property prices overall remained positive, with the survey showing 3.6% growth. A typical 'prime' property is now worth 21.3% more than it was in the second quarter of 2009, when the index recorded its post-financial crisis low, Knight Frank said. Prime property is the top 5% of the mainstream housing market in a particular city.

Property expert Suzanne Gill of Pinsent Masons, the law firm behind Out-Law.com, said that London's performance in the survey was the result of "a range of factors".

"London has historically benefitted from a great culture, good education and attractive public spaces such as Hyde Park," she said. "These are strengthened by the economic factors of a relatively weak pound and our position outside the euro; and the political factors of a stable society here and a visa regime which recognises the benefits that immigration can bring."

"Finally, the asset class itself – a good home – is understood the world over and prime central London homes are, for property, really easy and quick to sell. It's an asset class in short supply, which makes for rising prices. The clarity over the new annual tax on enveloped dwellings has also helped," she said.

The annual tax on enveloped dwellings (ATED) came into force on 1 April this year, with the first payments due in October. It applies to company-owned residential properties valued at over £2 million, and is intended to ensure that people who purchase high value residential properties in the name of a company, partnership or other 'non-natural person' pay their fair share of tax. Dwellings purchased as part of a genuine property rental business, held for charitable purposes or run as a commercial business are exempt from the charge.

Seven of the bottom ten positions in Knight Frank's quarterly rankings were occupied by European cities, including Paris, Rome and Madrid. However Tokyo was the weakest-performing city overall, with the value of prime property falling by 17.9% in the year to March 2013 and 10.1% over the past three months. Knight Frank said that the Bank of Japan had recently announced "radical monetary-easing measures" after 15 years of deflation, which the firm said was leading to increased demand for prime property.

On a regional basis, cities in the Middle East recorded average price increases of 11% in the year ending March 2013, while eight cities also recorded double-digit price growth. These included the European cities of St Petersburg and Monaco, with prices performing particularly strongly in Monaco, Knight Frank said.

The consultancy said that its survey had "repeatedly recorded" weaker growth in the first quarter of the year since it was established in 2009.

"As a result, we expect stronger growth to emerge in the second quarter as buyers continue to search for luxury bricks and mortar as a way of sheltering their assets from the eurozone's continuing turmoil and the fragile global economy," Knight Frank said.