Property Blog: Stats and the City

I am writing this post from a secret location while officially pretending to be engaged in the fundamentally innocuous task of removing chipped nail polish. Thing is, my husband's mission in life is to find innovative ways to persuade affluent people to invest their hard-earned cash into banking products.

And what I am about to type would sound like a betrayal to him, likely sparking a marriage-threatening row?hence my decision to go into hiding. Still, duty to my three readers (this site's editor, its deputy editor and my mother) compels me to speak. Or write, as it were. So here it comes: over the last twenty years, investment in property has significantly outperformed the stock market. Don't just take my word for it?look at this nifty little table produced by Knight Frank.

Sources: Knight Frank Residential Research, HBOS, FTSE, IPE

All these numbers means, according to a study released earlier this week by the company's Residential Research department, is that an investment of £100,000 made in 1986 in prime central London property would now be worth £503,683?a staggering 404% increase, which dwarfs the mere 278% of the FTSE 100 index.

"Prices in central London now stand 23.5% higher than they did only 12 months ago," says Knight Frank's Head of Residential Research, Liam Bailey. "This is the highest rate of growth in prices since June 1997 when the annualised rate was 25%."

The best Chelsea streets (which, alas, don't include mine) grew by 30% year-on year. Even better, the wild gallop of house prices looks set to continue well into the future, at least for as long as the current shortage of quality homes persists.

"The strength of demand is in no way being met by supply," says Bailey. "In September, supply has fallen by approximately 50% compared to the same month last year. This, together with the overwhelming number of applicants, made the difference between 0.3% monthly growth experienced in September last year and the strong 2.2% monthly growth this year."

The funny thing in all this, of course, is that the very people who owe their affluence to trading and the FTSE 100 are the ones that have been driving the performance of the London property market?and, as a byproduct, that of the rest of the country. City money has been fuelling demand for top London homes since the 27 October 1986 reform, which allowed London banks to buy brokers and other relevant firms and merge their services on Wall Street style trading floors.

"The (1986) reforms in the City not only cemented its position, but also led to the rise of serious wealth from an already wealthy source," says Bailey. "The real impact of this growing wealth has been on property prices and demand for property in the centre of London. Always desirable, London's market has become super-charged in recent months, with the most recent wave of hedge fund wealth adding to the competition for property."

I suppose you could say that the capital appreciation of London property is a function of the stock market. And that to ensure good growth prospects in the former, you have to invest in the latter. Which, incidentally, is a viewpoint that would make my husband really happy. Perhaps there's still hope for my marriage, after all.