London property no longer looks so safe

Wed Feb 13, 2013 11:04am EST
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By Tom Bill

LONDON (Reuters) - London's property is losing its attraction for investors as they start to venture out of 'safe havens' and worry that the city's prices look high given a slowing British economy.

A reputation as a safe place to park money during global market turmoil helped drive central London office prices up 52 percent between mid-2009 and the end of 2012. Prices in the smaller luxury residential market grew at a similar pace.

As investors feel calmer about the world in general, they are looking more closely at London property holdings.

"I cannot help but conclude that London is in bubble territory," said Ben Habib, Chief Executive of First Property Group FSTP.L, which owns British and Polish real estate.

"The returns available are very low and capital values vulnerable to a shock."

Commercial property deals reached nearly 21 billion pounds ($33 billion) last year, according to research group Real Capital Analytics. That was double the amount for Paris and four times Berlin.

Over 64 percent of money coming into the market was from abroad - up from 61 percent in 2011 and 55 percent in 2010.

But fears of a euro zone breakup, a slew of U.S. tax rises and spending cuts or sharply slowing Chinese growth have diminished - removing factors that had driven the flow of money.   Continued...

A woman looks out at the financial district from a window in The View gallery at the Shard, western Europe's tallest building, in London January 9, 2013. REUTERS/Luke Macgregor