House prices: London ranked the world's most expensive city

Despite its climb in the rankings – from 5th to 1st place since 2008 - London is still a way off the accommodation costs record, set by Hong Kong in 2011 at US$128,000 a year.

New York and Paris are also among the four leading cities, where the combined costs of renting residential and office space top US$100,000 per employee per year.

“London is not substantially ahead of its nearest rival - Paris - and therefore this is a symptom of success rather than a problem for London's competitiveness,” says Yolande Barnes, director at Savills.

“The lower level of price growth means that currency fluctuations have produced some of the biggest changes in our rankings which are expressed in dollar terms. For multinationals looking at their local costs, it is this which is likely to exercise them more than property markets over the next year.”

She continued to say that for investors into London, the increase in rental yields showed the sustainability of house prices.

However, the average house price in London has now hit £500,000, questionning the city's affordability for workers, and only yesterday a sale of 18 super-prime apartments by British Land broke the record for the most expensive ever sold in Mayfair at an average of £11.6m each - £210m collectively.

Hong Kong remains the only ‘New World’ city, from a recently-emerged or emerging national economy, to feature in the top five cities. Its position relative to the emerging markets of mainland China mean that it is unlikely to lose this status in the foreseeable future, despite property market cooling measures. The city remains by far the most expensive city in which to buy residential property, with prices 40 per cent higher than London - but the gap is narrowing.

Tokyo has fallen down the rankings (from 3rd to 5th position), as rents were falling or stagnant after 2008 and fell by 23 per cent in US dollar terms. Recently, however, the economic policies adopted by prime minister Shinzo Abe (Abenomics) have yielded improved economic conditions and spurred rental growth. Falls in the Yen have made Tokyo costs more competitive, but rental growth still provides incentives for investors, especially local ones. At US$76,000 per person, it is significantly cheaper for businesses to locate in Tokyo than in any of the leading group of four cities.

At the other end of the table, comparatively affordable Rio de Janeiro and Sydney have seen significant increases in live-work costs since 2008, up 85 per cent and 58 per cent respectively, though Rio still looks highly competitive at just US$32,000 per person. Mumbai retains its position as the cheapest world city, at US$30,000 per person per year, down -21 per cent in US dollar terms since 2008.

“This year has seen much more modest real estate price growth in nearly all our world cities and some have shown small falls,” says Yolande Barnes, Director Savills World Research. “We expect this subdued trend to continue as investor interest and market activity shifts to second-tier cities.

“This lower level of price growth means that currency fluctuations have produced some of the biggest changes in our rankings which are expressed in dollar terms. For multinationals looking at their local costs, it is this which is likely to exercise them more than property markets over the next year”.

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