London’s luxury market saw prices increase for a 14th consecutive month in December 2011 as overseas property buyers slugged it out to buy “safer” investments and to compete in a sector that is beginning to suffer from a severe lack of stock, international agency Knight Frank LLP told OPP this week.

The prime central London market has seen the price of houses and apartments leap up to an average of £3.7 million (US $5.7 million) and the December rise pushed things up by a further 0.8% versus November.

According to the latest Knight Frank report, luxury home values in London are now 7% up on their previous peak in March 2008.

“Demand for prime London property in 2011, despite uncertainty resulting from the euro-zone debt crisis and on-going global economic uncertainty, outpaced supply and led to strong price performance,” Liam Bailey, head of residential research, told OPP.

For the full year, prices surged by a shade above 12% and prime central-London prices have risen around 40% since the market’s lowest point in March 2009, says Knight Frank.

The only worrying trend is that the number of new instructions to sell in neighbourhoods such as Knightsbridge and Belgravia plummeted by 6% year-on-year in the fourth quarter of 2011 says Knight Frank.

Agreed, says Camilla Dell, founder of Black Brick Property Solutions LLP, adding that “tight supply has remained a feature of the prime central London property market through 2011 and we see little reason why this might change materially in 2012.”

Luxury-home prices in central London rocketed upwards at their fastest rate of increase for a year during May. The pound’s weakness on the international currency exchanges helped to encourage a large number of overseas buyers to compete for a declining number of properties for sale, according to agency Knight Frank LLP.

Residential property in the US $6 million bracket saw values jump by +1.4% on April, the seventh straight monthly increase. The market was up by 1% in April.

Homes in upmarket areas like Knightsbridge and St. John’s Wood have seen their prices rise by a third since March 2009, topping the peak reached in March 2008.

The volume of homes for sale in London is 5% down year-on-year says Knight Frank.

“For many investors and potential owner-occupiers based in fast-growing emerging countries, prices of prime central London property are actually well below the 2007 peak in their own currency terms,” adds Camilla Dell, managing partner and founder of Black Brick Property Solutions LLP. Her London-based company advises luxury-home buyers in southeast England.

Also, competition is increasing for properties in need of renovation because there’s a shortage of fully-equipped homes on the market, says Stuart Bailey, who heads Knight Frank’s Belgravia office. “We had sufficient demand that we didn’t even need to do any formal marketing.”

According to Bailey, only one of the 15 homes that his team has sold for more than £10 million in the past 12 months has gone to a UK buyer. Overseas property investors are definitely dominating the market.