Middle East buyers are expected to return to London's luxury real estate market in 2013 after a period of uncertainty following the Autumn Budget statement, Savills has said.
The property specialist said 2012 saw a "significant slowing" in house price growth in central London despite strong international demand, including wealthy Arab investors.
Three and a half years of high growth has left average prime central London values 23.9 percent above their former 2007 peak, Savills said, adding that the market for homes worth over £5m stood even higher - at 32 percent above peak.
Savills said there was further evidence of London's market being fuelled by overseas capital and a real difference between international big ticket trophy hunters and the yield-seeking investment buyers.
"This is leading to discrepancy between the very core locations in prime central London and the outer prime zones, and between locations dominated by international equity and those predominantly reliant on domestic buyers," the consultancy said in a new report.
"In core locations, interest in large, high value trophy homes has boosted the value of super prime (£5m+) homes by 6.4 percent this year and 31.2 percent since peak.
"After a period of uncertainty post Budget, we expect overseas buyers - such as Middle eastern and CIS nationals - to build the extra cost of ownership in London into their calculations, now that the tax changes for properties over £2m have been crystallised in the finance bill."
Overall, prime central London residential values rose by an average of 5.3 percent this year, substantially lower than the annual growth of 21.3 percent, 6.7 percent and 14.2 percent seen in 2009, 2010 and 2011 respectively.
Savills said in the past quarter, only Knightsbridge and Chelsea, traditionally favoured by Arab buyers, have continued to show price growth of one percent or more - rising 1.9 and 1.0 percent respectively.
Along with Mayfair and Belgravia, other hotspots for Middle East investment, these core prime central London locations have outperformed all others over the past five years, with Knightsbridge setting the pace, rising 8.6 percent in 2012 to end the year 41.1 percent above peak.
"This reflects the fact that these central areas have continued to attract ultra wealthy overseas buyers in search of a safe haven store of wealth, with sales of super prime properties particularly in demand," Savills added.
In the first 11 months of this year, analysis by Savills suggests that there were 343 sales in the market over £5m compared to 319 in the first 11 months of 2011. The total for the whole of 2011 was 352.
In November, Knight Frank said Middle Eastern buyers had piled into London's luxury home market in October as they shielded their wealth from political turmoil back home, including the Syrian civil war.
While the trend is not new, a sharp increase in buying in October suggested wealthy citizens in some Middle Eastern countries believe their security is continuing to deteriorate, even as politics become more stable elsewhere in the region.
Buyers from countries including Egypt, the UAE, Israel and Jordan spent 50 percent more on London property in October than they did in the same month last year, paying an average 3.5 million pounds ($5.6m), property consultant Knight Frank estimated.