Published September 25, 2008

Monaco now has the costliest luxury homes

It overtook London with an average price increase of 30% to 3,762 psf

(LONDON) London was overtaken by Monaco as the world's most expensive location for luxury homes as job cuts by banks and the prospect of lower bonuses discouraged buyers.

The average price of London's most expensive houses and apartments rose 1.8 per cent to 3,291 a square foot in the second quarter from a year earlier, according to an index compiled by Knight Frank LLP.

In Monaco, the average increase was 30 per cent to 3,762, the property broker said on Tuesday in a statement.

'The prime residential market is weakening across the world, due to the fallout from the credit crunch and declining economic conditions in western markets,' said Liam Bailey, Knight Frank's head of residential research.

Demand from the 300,000 people who work in financial services, which has underpinned London's luxury-housing market, has dropped as companies in the industry slash personnel costs.

Lehman Brothers Holdings Inc, which filed the biggest bankruptcy in history, employed about 4,500 here.

Average prices for houses and apartments in London's nine most expensive neighbourhoods fell for the first time in five years in August, as the prospect of a recession weighed on demand, a separate index compiled by Knight Frank showed last month.

The City of London Corporation, the municipal authority for London's main financial district, estimates that 42,000 jobs will be lost during the next year.

Alongside the financial centres of London and New York in Knight Frank's index come homes on the French Riviera and chalets in the French Alps, reflecting demand from high net worth individuals, notably from Russia, who are also buyers of 'super prime' properties here and in New York.

In London, Monaco and New York, prices of properties worth at least 10 million (S$26 million) have continued to climb, with some newly constructed or refurbished homes fetching in excess of 7,000 a square foot, Mr Bailey said.

'Demand is not going to evaporate,' he said. 'Wealth creation and accumulation in emerging economies and in specific high-end service sector activities will continue.' - Bloomberg