London residential property is the most expensive in the world

It has long been suspected by disappointed house-hunters, and now it's official: London has the most expensive residential property in the world.

New research shows that the cost of £1m-plus homes in the capital's swankiest areas outstrips even that of glitzy Monaco and New York. And with too much money chasing too few properties, prices are still soaring.

The report on the top end of the market, by estate agency Knight Frank and Citi Private Bank, reveals that the average cost of prime central London property is £2,300 per square foot. That compares with £2,190 in Monaco and £1,600 in the Big Apple. Completing the top five are Hong Kong (£1,230 ) and Tokyo (£1,100). The capital's "super-prime" areas are Belgravia (where prices can exceed £3,000 per square foot) and Knightsbridge.

Liam Bailey, head of residential research at Knight Frank, said London was benefiting from its status as the world's leading international city, frequented by globetrotting elites. "The most expensive cities are those where rich international buyers congregate, and no other city is as international as London," he said. "Its time-zone and language - convenient for businessmen from the US to the Middle East to Asia - all conspire to make London the leading financial centre, and this has boosted house prices." A chronic shortage of quality stock is another factor.

So who are these ultra-rich buyers, snapping up all London's best homes? Wealthy foreign purchasers were responsible for 59 per cent of prime London sales so far this year. Most came from Europe (and half of these from Russia), America and the Middle East. Demand from UK buyers was driven primarily by City bonuses. The rush to buy has been so strong that prices have leapt by 32 per cent over the past year.

In terms of price growth, however, London is dwarfed by St Petersburg (where annual house price growth is running at a staggering 95 per cent), Moscow (75 per cent), Delhi (47 per cent) and Mumbai (44 per cent). "These areas have seen high growth on the back of rapid economic development, together with the creation of new wealthy sections of society. This is leading to intense competition for the best apartments and villas in secure prime neighbourhoods," the report said.

It predicts that, within 10 years, Moscow will vie with London for the title of the most expensive city in the world. While the exclusive area of the city will be much smaller, the prices achievable for new-build prime developments will be comparable. There is huge demand for prime property in Moscow owing to little existing stock and a very small potential pipeline of additional property.

New York is seen sliding from its number-three position to number four, below Hong Kong. The Hong Kong market is tipped to recover from its current cyclical trough and see an improvement in demand and pricing after several years of under-performance.