Heard on the Street: London Property's Vulnerable Side - WSJ.com

Heard on the Street: London Property's Vulnerable Side - WSJ.com

How long can London's property market defy gravity? House prices in the capital rose in December, even as prices elsewhere stayed flat or fell, says the Royal Institution of Chartered Surveyors.

Prices in prime central London are around 16% higher than their September 2007 precrisis peak. Some forecasters predict a further 25% jump by 2016, as foreign investors continue to seek havens for their cash. But downward pressures are likely to intensify this year.

Foreign buyers account for more than half of the sales of London's most desirable residences, helping shield the market from a domestic downturn. Many have large chunks of equity to invest, so are less affected by the mortgage-lending squeeze. Recent sterling weakness against many currencies—down 20% against the dollar since the start of the crisis—has added to London's allure ......