The rivalry between New York City and London is taking on a new dimension, and it's taking its toll -- on housing values.
As luxury real-estate property prices soar to new heights, London seems to have gained the upper hand.
A joint study by Citi Private Bank and U.K. real-estate firm Knight Frank concludes that London is now the most expensive real estate market on earth, surpassing New York City.
Luxury properties there average over $2,800 per square foot by some measures, or about 60% more than New York City's.
Even the difference in the growth rate is startling: Knight Frank concludes that in some coveted central London locations, such as Knightsbridge and Belgravia, property prices are now 40% higher than a year ago.
By contrast, U.S. realty firm
Prudential Douglas Elliman reports a comparatively modest 6.6% growth rate in New York over the same time period.
These numbers aren't cause for despair just yet, says Dennis Santolo of
Re/Max New York.
"Although Manhattan sales were pretty flat last year, things have really heated up this year -- especially after Wall Street bonuses," Santolo says. And he doesn't see it letting up any time soon.
"Everywhere in Manhattan, everything's selling. You're even starting to see real luxury properties going up in Harlem," Santolo continues.
Across the pond, however, there are similarly bullish sentiments being echoed. Roger Collings of Re/Max's central London office says there are plenty of factors driving London's prices sky-high, ensuring more than just a temporary boom.
"There is a perception that London is a safe place to invest; the U.S. is seen as a bit unstable financially right now. Plus, the financial sector here is growing quite rapidly," Collings explains.
Over 50% of recent London purchases have been made by foreigners, he adds.
The origins of the wealth? Collings cites the Middle East, Asia and Russia, with oil money as a principal source.
But foreigners are snapping up properties in the U.S., too, proving that a weak dollar is not always such a bad thing, according to Santolo.
"I'm seeing lots of Europeans and English attracted by the weak dollar," says Santolo.
What is good for London may not necessarily be good for New York, however.
Santolo fears that the new wealth pouring into London may not be permanent. "The money coming into New York is the same as always, basically ... but what happens in London if there are problems in those
Wall Street's wealth may not have passed its apex, but if London's is flourishing due primarily to foreign funds, it can also suffer mightily at the hands of Russian oligarchs and Middle Eastern oil barons. And a large share of Wall Street bonuses tend to stay in New York City.
Where does the London bonus money go? "Mostly to the Mediterranean and other holiday destinations," Collings points out.
But there is a more important cause for concern -- interest rates.
"People are starting ... to worry about interest rates going higher," Collings says. "That may not affect the super-rich in Belgravia, but it may affect sales and prices across the board."
Collings also doesn't see the pace of acceleration continuing in greater London, which may have some spillover effect into the pricier neighborhoods.
New York City is a different story, however. Momentum is returning to a market depressed in 2006 by higher interest rates and a swooning national real-estate market, says Santolo.
"Interest rates went higher, so people were waiting,
and now they're ready to buy again," Santolo says. "I see the pace of acceleration quickening."
Still, this may all be just petty bickering between two long-time rivals who fear their glory days are fading. The hottest luxury real-estate market of tomorrow is unlikely to be in either the U.S. or U.K.
As Collings says, "Think of China or places in India. Those are the luxury markets we are already seeing tremendous growth in. That's where the future is."
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