Posted By: Mark Thatcher

By Bob Sherwood in LondonTue Nov 14, 1:45 PM ET

The surge in prices at the top end of London's property market tells the story: the good times are back in the City.
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Bonuses for bankers, traders and lawyers in the City, as London's financial district is known, are forecast to hit record levels, largely on the back of strong merger and acquisition activity.

After a few years of relatively flat prices, the prospect of £1m-plus ($1.9m, EU1.5m) bonuses and a shortage of high-end properties is driving bids way above their asking prices. Estate agents report that many City high-flyers are already searching for properties even though their bonuses have not yet been announced.

Lulu Egerton, at agents Lane Fox in the affluent district of Chelsea, said: "We have got some very, very good buyers looking at the moment. They know what their bonuses will be so they have started looking and are very actively searching."

The City has helped make London one of the most expensive cities in Europe, if not the world. The markets for cars, art, luxurious goods, power boats and the other trinkets of rich living, such as shooting weekends, are also expected to boom on the back of City money.

But it is in property where the effects are most keenly felt. For example, one prime house in the area came on to the market last week for £5m and has already sold for £5.5m. "I just put another one on the market yesterday for £4.5m and we got a bid for £5.25m this morning," Ms Egerton said.

Competition is so aggressive that buyers are having to put in sealed bids and they need to have the cash available to buy immediately. "It's tough at the moment if you don't have the liquidity of the bonus buy," she said.

But many do. City bonuses this year will be 10 to 30 per cent higher than last year, according to Armstrong International, an executive search firm. Getting exact numbers for the sum of money paid out in bonuses is difficult, if not impossible. Some estimates reckon that 4,200 workers in London's financial sector will receive a bonus of more than £1m, up from about 3,000 last year.

The figures are a boost to the claim of Ed Balls, the UK's City minister and close ally of Gordon Brown, the chancellor of the exchequer, that London could become "the world's greatest global financial centre". Policymakers have been keen to stress London's benefit as a business city, with hundreds of international companies locating in the British capital in recent years.

London's rise as a global financial centre has not gone unnoticed in the US, with Michael Bloomberg, New York's mayor, recently uniting with Charles Schumer, its Democratic senior senator, to support a McKinsey study into how New York can reassert its financial dominance.

The City of London Corporation, the authority that governs the financial district, last week stressed the importance of the financial sector for the economic health of the capital and the country as a whole. It said London's net contribution to government revenues had risen to more than £13bn.

It also emphasised the effect of overseas workers and house buyers. In spite of the higher cost of housing in comparison to almost all other capitals, London was more global than other leading world cities, with 51 per cent of houses selling for more than £2m bought by foreigners. That compares with 34 per cent of prime sales in New York, 27 per cent in Paris and 13 per cent in Hong Kong.

London's workforce is predicted to swell by 600,000 jobs in the next decade, with a large proportion likely to be taken by skilled mig­rants. Last year, for ex­ample, net international migration to London reached 126,000.

Employment at Canary Wharf, the office development at London's Docklands that is now home to many international banks and law firms, is currently at 80,000 but is predicted to reach almost 200,000 within 20 years.

However, senior business figures are insisting that the success of the financial sector should not be taken for granted by the government. They are demanding large public-sector investments in the capital's creaking infrastructure, warning that otherwise the growth of the financial sector could be choked off. They are particularly keen to secure a funding agreement for a long-delayed £16bn Crossrail underground rail scheme to link Heathrow airport, the West End, the City and Canary Wharf.

Michael Snyder, the chairman of the City's policy and resources committee, said: "London's economy has grown strongly, driven substantially by its world-leading financial services industry.

"It is clear, however, that continued growth in London's positive contribution to the nation is dependent on further investment to create more living and work space and better services to connect and support them."

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