The party’s over for London property

"There are three main safe havens' now," David Adams, managing director of estate agents John Taylor, tells The Guardian: "gold, the Swiss franc and London property." He may be right on the first two but we're not so sure about the latter.

There's no disputing the fact that prime London residential property prices have defied the global economic gloom. According to Knight Frank in The Sunday Times, average prices for prestigious postcodes are up by around 50% since hitting their post-credit crunch low in early 2009.

Indeed, prices are now higher than they have ever been in many areas. Meanwhile, over the same period the FTSE 100 has fallen by around 11%. But it's what's been driving this boom fear and foreign money that spells trouble for anyone about to join the rush.

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Plenty of wealthy Greek (not to mention Italian, Spanish and French) families have been looking for somewhere safe to invest as eurozone contagion spreads. London property is perfect as well as being an attractive trophy asset, it features limited supply, it's backed by well-established property laws and it's priced in sterling.

Since 2007, when a pound could buy you around €1.50, sterling has weakened greatly, as the Bank of England fought to stave off recession using money printing. That's been bad news for British holidaymakers, but something of a free lunch for overseas property investors.

But two factors could soon kick this seeming no-brainer investment into touch. Firstly, the eurozone crisis looks set to come to a head now that the biggest players, such as Spain, are struggling. As Fathom Consulting notes, a complete break-up of the eurozone could see money flood back to the Continent to snap up once-in-a-lifetime bargains. They reckon prime London property prices could fall by up to 50% over the course of five years. Even if the crisis has a more benign resolution, the drying up of safe haven' flows could also hurt London property.

Secondly, sterling's time on the ropes seems to be over, making London property less of a bargain for overseas buyers. That's why Capital Economics expects a 2% fall for the capital this year and a 6% drop the next.

In that context, it's no wonder that a once-exclusive residential property fund is relaxing its entry criteria. London Central Portfolio recently dropped its minimum investment to £5,000 (from £50,000) for anyone who fancies exposure to million-pound flats in Kensington and Chelsea without having to buy one. Our view? Once the smaller retail investor is invited to join a party, it's usually over.