The surge in sales in London's luxury residential property market is more indicative of the slow pre-referendum market than of future trading conditions, Knight Frank says.

In the wake of the UK's decision to leave the European Union, average prices across prime central London fell in June by -0.2 per cent, the weakest monthly result since November 2014, according to research by Knight Frank.

Compared to a year ago, prices were down 0.6 per cent at the end of June. Weaker price growth was attributed largely to the uncertain period leading up to the referendum, when sellers were prompted to reduce asking prices.

During the week after the momentous Brexit vote, the number of transactions were 38 per cent higher than the prior week and 29 per cent than the final week of May. 

“This positive story has been widely reported, but what has often been missed is the weakness of sales prior to the vote, which has flattered more recent sales data,” said Tom Bill, head of London residential research at Knight Frank.

According to Knight Frank's post-referendum data, new buyer registrations and viewings have both dipped from the same period a month ago, although the firm says it is still very early to draw conclusions.

“Political uncertainty in the UK will undoubtedly weigh on sentiment, and will be likely to last until at least the heads of terms of the new relationship between the UK and the EU are agreed. A reduction in political risk should allow mitigating factors to kick in and support the London market,” said Bill.

Going forward, positive events for the property market may include a cut in the UK base rate (though Knight Frank notes this is unlikely to fully translate into lower mortgage rates), proposed rate cuts in markets like India and China and record low government bond yields, which make property a more attractive investment by comparison. Knight Frank data shows that the current residential yield in prime central London is 3.1 per cent versus 0.9 per cent on a ten-year UK government bond.

In addition, the recent weakening of the British pound is good news in terms of relative affordability for international buyers in the London market – for a Hong Kong buyer, effective pricing in prime central London is 21 per cent lower than it was two years ago, according to Knight Frank.