London property

It was a similar story, he says, in the months before Silvio Berlusconi announced he would step down as Italy’s prime minister. Hordes of Italian buyers descended on London as the markets punished their home country for its political myopia.

To top-end London agents, the same pattern was evident when Greece hit the rocks economically and when a swell of discontent ushered in regime change in Egypt.

“Buying a London house has become the stock reaction. Wherever there is political or economic unease, people instinctively head for the Monopoly board of prime central London addresses,” says Mr Hewlett, head of London residential property at Savills, the big UK agency.

Favoured districts of the UK capital have become the destination of choice among investors seeking a safe place to store their wealth. The combination of a stable political environment, respected legal system and, crucially, a clear framework for property ownership has turned it into an investment lagoon in a world beset by economic and political tempests.

Liam Bailey, head of residential research at Knight Frank, a rival agency, says: “The wave of money that has been flowing into London property over the past three years has been supercharged by one key theme – political risk. The world’s wealthy, especially in emerging markets, are nervous about arbitrary rule and policy change in their home countries and how this might affect their ability to protect their wealth. So they are moving money, and increasingly their families, to more stable environments. These house purchases are effectively triple-A rated bond investments – which happen to have a London address on them.”

If homes that were once just well-located bricks and mortar have morphed into something more akin to a reserve currency, that creates a big distortion to the residential upper tier.

However, Mr Bailey is among a growing band of property experts suggesting that London’s prime market – the top 5 per cent of the housing stock by price – is barely at the start of a sustained rally, underpinned by increasing uncertainty elsewhere in the world and the resulting push towards personal wealth preservation.

The world’s stock markets have lurched about, showing little sign of finding a compass. Government bonds have come under pressure from investors who realise that sovereign debt is no longer the risk-free investment it once was.

By contrast, since losing a quarter of its value soon after the start of the 2008 financial crisis, London’s prime property market has boomed, increasing in value by 42 per cent.

That also decouples it from the wider UK housing market, which, having fallen 18 per cent in value during the first year of the crisis, has recovered by only 7 per cent.

One factor supporting prime London house prices is the scarcity of properties that are suitable in size and location. While there is plenty of stock in the capital, international buying activity is concentrated on a tiny triangle of postcode slivers that border on the south-east corner of Hyde Park. From the stuccoed canyons of Mayfair and private-gardened squares of Belgravia to the £5,000 per sq ft apartments of Knightsbridge, the demand is targeted at areas characterised by finite supply.

The upshot has been the creation of residential pockets where values bear little relationship to the underlying momentum of the market, taking on instead the sort of arbitrary worth normally reserved for precious stones or fine wines.

Mr Hewlett at Savills says: “If you look at it dispassionately, a London house is an asset that is appreciating in price in a stable environment characterised by extremely limited supply. Perhaps more importantly, people really trust the property market here. They know that if they buy it, they own it and the courts will protect that right.”

London’s attraction as a haven has greatly widened the geographic make-up of the buyer base since the start of the financial crisis. In 2008, the foreign element to the city’s prime property market comprised 28 nationalities. By last year, the figure had more than doubled to 64.

The degree of foreign interest in the market reflects what is going on in the world. Greece, for example, has quadrupled its share of buying during the past three years and now accounts for 2.9 per cent of all prime property transactions. US house-hunters, by contrast, have retreated: they make up just 2.5 per cent of the market, all but halved from 4.9 per cent in 2008.

Moreover, activity levels are growing. Sales of houses worth more than £5m – a slice of the market dominated by overseas wealth – soared 98 per cent in the first 11 weeks of this year, with transactions totalling £723m compared with £365m during the same period in 2011, according to research from Knight Frank.

But while the flight to safety is a main motive force behind London’s success, there are other reasons why demand in the top tier of the city’s housing market is thought unlikely to recede in the near future.

The location of the UK, sandwiched neatly in the middle of the world’s main time zones for economic activity, has always made London attractive to business – and those who want to be close to it.

Also helping London keep ahead of New York, Hong Kong and Paris in attracting international property investment has been the wide choice of schools, a legal system considered to be among the world’s fairest and a structure of ownership enshrined by centuries of land registry documentation.

“London has an integrity that a lot of other places don’t have,” says Amanda Staveley, a British-born banker who has become a deal-broker between Middle Eastern investors and the UK.

She worries, however, about the government’s announcement in last month’s Budget that it was to levy a 15 per cent tax on those who used company structures to buy houses. The legislation is likely to be hard felt by foreign buyers, many of whom purchase through corporate vehicles.

“The Arab world in particular has always done well out of London and it is still considered a big trophy to own a property there. But a lot of extremely wealthy people are keen to remain anonymous and use companies to hide their identity – not to avoid tax,” says Ms Staveley. “The government needs to see the prime London market for what it is: a great British success story and something they should be proud of and champion, not tax out of existence.”

Opportunities for low-risk wealth creation have also been attracting investment funds – average combined rental and capital growth returns on a £2.5m house bought on the first day of 2011 are 14.2 per cent. Anxious to get a foothold in a fast-rising market, private equity groups are starting to deploy the kind of financial muscle the usually reserve for corporate transactions.

One such company, Brockton Capital, recently bought 40 flats in a 1930s apartment block in Curzon Street, Mayfair. The group plans to convert the building into an 18-unit, ultra high-end housing project with a total value of close to £400m. The deal is typical of a host of development projects in or close to the most sought-after postcodes.

Inevitably, it is likely that at some point the market will go through another crash. There are already those who warn that the frenzy at the top of the market has all the hallmarks of a bubble. Sustained economic improvement in continental Europe would, for example, slow a vital source of money to the market. Similarly, a terrorist attack on London or any sudden political upheaval would challenge the notion that demand will always outstrip supply.

Until then, however, London’s estate agents can guarantee that their next payday will never be far away. It is just a question of waiting until the next time, somewhere else in the world, that the butterfly of uncertainty flutters its wings.