Sometimes, it's easy to confine my thinking just to the US but this article says that we're not alone in creating real estate bubbles. I wonder if it's just the ultra high end properties; or, if all British real estate is skyrocketing? I also didn't know that London had the most expensive real estate. So, for those trying to buy in Manhattan...you can take comfort in knowing it's worse someplace else! lol

London Luxury Home Prices Increased by Record in July (Update1)

By Peter Woodifield

Aug. 19 (Bloomberg) -- Luxury-home prices in London climbed at a record monthly pace in July as buyers competed for a smaller number of properties, real estate broker Knight Frank LLC said.

The average price of houses and apartments in the U.K. capital costing at least 2.5 million pounds ($5 million) rose 3.9 percent last month from June, according to London-based Knight Frank. The annual increase was more than 36 percent, the highest since Margaret Thatcher came to power in 1979.

``Add into the mix rising domestic wealth and rising foreign wealth coming into the country, we can see why prices have risen strongly,'' Liam Bailey, head of residential research at Knight Frank, the U.K.'s largest closely held real estate brokerage, said in a statement today. The company forecast a gain of 25 percent for all of 2007.

Investment bankers and hedge-fund managers with bonuses to spend are vying with rich individuals from Asia, the Middle East and Russia for a shrinking supply of prime real estate in central London. The number of homes for sale in the city costing more than 2.5 million pounds has dropped 23 percent since 2005, according to Knight Frank.

Britain is home to about 68 billionaires, according to the Sunday Times' 2007 Rich List. Many are investors from China, India and Russia who have bought homes in London to take advantage of the city's security, schools, stores, theaters and restaurants.

Hinduja Brothers

About 61 percent of all properties in central London that fetch more than 4 million pounds are acquired by foreigners, Knight Frank estimated. These buyers ``are much more likely to hold onto their property for a longer period as an investment, even if they return to their home country,'' said Bailey.

Brothers Sri and Gopi Hinduja, who own Mumbai-based Hinduja Group with a sibling, last year paid 58 million pounds for a 60- room home on The Mall, the avenue which runs from Trafalgar Square to Buckingham Palace, according to the Sunday Times.

Other foreign residents or home-owners include Norwegian shipping magnate John Fredriksen and Vladimir Kim, chairman of Kazakhstan's biggest copper producer, according to the Sunday Times. Overseas buyers are also attracted by tax rules that allow wealthy non-British individuals to live in the U.K., while paying their tax overseas.

Mortgage Costs

The Bank of England has raised borrowing costs five times in the past year to keep a lid on inflation. The benchmark interest rate may need to climb to 6 percent in September from the current 5.75 percent, policy makers indicated earlier this month, a move that would further increase mortgage costs for homebuyers.

A house that cost 100,000 pounds in 1976, when Knight Frank started its index covering seven of London's most expensive districts, was worth 4.49 million pounds at the end of last month. That's an increase of about 170,000 pounds from June, or almost seven times the average annual U.K. wage.

Prices have risen 19 percent in the past six months after posting a 3.1 percent gain in June, the previous record monthly increase. Knight Frank expects the rate of gain to slow, last month forecasting a 25 percent increase for 2007.

Prime properties in London are the most expensive in the world, selling at 2,300 pounds a square foot, or 5 percent more than in Monaco. In New York, comparable homes sell for about 1,600 pounds a square foot and in Tokyo for about 1,100 pounds, according to Knight Frank.

To contact the reporter on this story: Peter Woodifield in Edinburgh at pwoodifield@bloomberg.net .

Last Updated: August 19, 2007 06:55 EDT

Tricia