Luxury-home prices in central London have risen on an annual basis for the first time in 17 months as executives buy homes and apartments in anticipation of bonuses.

Everyone knows that living in London, England is a pricey endeavor; but for those of us who know and love the vibrant English city, somehow, it’s just worth it.  According to recent reports, many bank and hedge-fund executives agrees, as they begin to buy houses and apartments again in London in anticipation of bonuses, driving up luxury-home prices in central London on an annual basis for the first time in 17 months.

The value of properties costing more than $1.6 million were 1.6 percent higher this November than they were a year ago, making it the first annual increase since June 2008. While prices remain 15 percent below their peak in March 2008, any increase is a good sign for the city and a hopeful indication of where things may be turning.

The head of residential research at Knight Frank said, “Anecdotal evidence from across our offices suggests that City money is becoming more apparent as we get closer to the end-of-year bonus season. Demand from senior management is driving the market.”

Luxury-home prices rose 1.2 percent between October and November 2009 as the city saw the “eighth straight month-on-month increase.” Frank adds that the most expensive London homes didn’t actually start to recover in value until May.

End-of-year bonuses for financial-service employees in London and Canary Wharf, another large financial district, are expected to rise 50 percent this year to an impressive $9.82 billion, which may explain why it’s reported that finance workers account for half of the demand for luxury homes.

But there’s one problem. Despite the potential increase in bonuses and consequential increase in luxury-home buyers, the number of properties available is anticipated to remain quite low. Louise Hewlett, managing director of London-based Aysleford International explains, “It is the shortage of supply which has given the rather false impression of a buoyant market. In some instances, high prices have been paid purely based on the lack of choice and competition from other buyers.”

Some people are suggesting that luxury homes may only return to their peak prices in 2012, and while this is still approximately one or two years sooner than the rest of the UK housing market is expected to rebound, it’s still two years away.

The British pound’s 19 percent decline against numerous currencies, including the euro, has resulted in a surge of demand from foreign investors. Italians, for example, accounted for almost half of European buyers of London property in 2009, 30 percent more than in 2008.

Houses and apartments in the Chelsea, Kensington, and Knightsbridge area’s of the city have seen the most increases in prices, as they tend to be areas favored by bankers.

Via: Bloomberg