Research by EC Harris has revealed the scale of the boom in luxury housing worth more than £1000 per sq ft.

Work will get underway on 9,000 new units by 2020 with 4,000 worth £8bn due to come onto the market by 2014-15.

EC Harris said the market is dominated by foreign owners and warned developers that global unrest could make demand more volatile in the future.

The report said: “Risk factors that could impact this demand before the planned pipeline of new prime residential property is available include international monetary policy changes and continued global economic uncertainty.”

Mark Farmer, Head of Private Residential at EC Harris said “In order to address this backdrop of a marked increase in supply and the general uncertainty over continuing levels of demand and sales price growth, London prime residential developers need to have a robust and realistic business plan.

“They should consider very carefully whether the properties being developed are differentiated and have real attraction that will suit the unique requirements of an increasingly discerning future market faced with more and more new development choices.

“It is crucial that prospective developers and investors seek the right early commercial advice and engage design and construction expertise with a proven track record in this niche market.

“There are a host of new entrants moving into the prime residential development including traditional volume house builders and commercial office and retail developers.

“New players such as these will be faced with steep learning curves and need to ensure they transfer the appropriate skills from their core businesses but also bolt on new expertise as appropriate to deliver what is a very unique product.”

EC Harris analysis shows that despite this note of caution regarding supply and demand imbalance there are still clear opportunities and broadly trended sales value growth is expected to return to a healthy 6-8% pa beyond 2012.  This is likely to exceed background levels of construction price inflation for the foreseeable future.

Farmer added: “We are seeing accelerating development activity capitalising on the current high levels of international demand for prime residential property in London.

“However in many cases the assumption is that the associated market demand will be insatiable, indiscriminate and unchanged three years from now.

“In reality, strategies for successfully selling units into a much more crowded London residential market and for managing the unique challenges of developing in central London need to be in place before a potential site is even acquired.

“London will, however, continue to offer opportunity for appropriately organised and experienced developers and those new entrants who seek the right specialist advice and adopt a considered approach. Those that try and simply ‘jump on the band wagon’ thinking there are guaranteed returns to be had may get burnt.”