Property prices in London’s most sought-after postcodes have risen steadily over the past couple of years, as investors have moved funds out of assets held in euros to buy into what is seen as a “safe haven” alternative.
Foreign money seeking a refuge from the wider economic turmoil accounted for 60 per cent of acquisitions of prime central London property between 2007 and 2011, according to a report by Fathom Consulting for Development Securities.
If the shared currency broke up completely, London property would initially be boosted by the continued flight towards a safe haven, the report predicts.
But, once the break-up had taken place, demand for these assets as an insurance against this event would start to ebb.
“Although fears about a messy end to the euro debt crisis may account for much of the gain in prime central London (PCL) prices that has taken place over the past two years, we find that a break-up of the single currency area is also the single greatest threat to PCL,” said the researchers.
“In our judgment, a collapse of the single currency area could ultimately produce a 50 per cent fall in the value of PCL property.”
But the logic of the situation could still work out in London’s favour: if the euro collapses, the pound would be even more of a safe haven. And meanwhile, money is also flowing into the capital from countries affected by the Arab spring.