Central London residential property prices increased by +3.2% in February 2010, which is the highest rise in a month since August 2007 according to Knight Frank.

Prices are now only 10% below the market peak of March 2008 having risen by +19% in the past ten months.

Liam Bailey, head of residential research, Knight Frank, said: "The market recovery in London was kick-started in March 2009 by low interest rates and the weak pound which drew foreign buyers to the capital. There was a definite feeling that price falls in the year to March 2009, at -24%, had created good value in London and buyers began to bid prices higher. Foreign demand has led the market, with 45% of £2m+ purchases going to non-UK buyers over the past 12 months.

"The continuation of the growth in prices and the recent increase in the speed of such growth has been caused by a dramatic shortage of supply, with 22% fewer properties available for sale at the current time compared to normal for the time of year. At the same time demand has remained very strong with a significant influx of foreign purchasers meaning that purchaser applicant registrations is 30% higher right now than in any comparable period for the last five years.”

An increase in demand has resulted in niche developers coming back into locations such as Chelsea, Mayfair and Belgravia, after an absence of nearly 18 months. There was a +43% increase in construction starts in Kensington & Chelsea between July and December 2009, from 557 to 799 new homes.