LONDON property prices are set to fall next year and it’s the government’s austerity policies that are to blame, according to a report out today from estate agent Savills.


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Thanks to investment from abroad at the high-end of the property market, London has escaped the post credit-crunch house price slump, but in 2012 prices in the capital are set to fall by 0.5%, say Savills.

Taking into account inflation of about 4.5%, that means a 5% fall in real terms.

“The government’s austerity measures have affected household finances and home-buyer confidence,” said Lucian Cook, research director at Savills.

Not everyone will feel the effects of the “austerity measures”, however.

“Central London’s residential real estate is increasingly behaving as an asset class, more closely linked to global wealth generation than any domestic indicators,” said Yolande Barnes, also of Savills.

Prices in places like Kensington, Knightsbridge and Mayfair are predicted to rise by 3% in 2012 and by 23% over the next five years.