Speculation that a housing bubble is building up in the London property market is based on short-term views and misunderstanding of how the market works, saysLondon Central Portfolio, a specialist asset manager.

The firm argues that houses in central London are among the most desirable in the world, with little correlation to the UK housing market.

"The factors affecting the UK housing market - mortgage availability, employment and economic confidence - simply do not apply to Prime London Central, which is no longer a nation capital but a world capital," the firm says.

Quoting figures from the HM Land Registry, the LCP says the average property price growth in the UK has been 9 per cent a year over the past 40 years, while houses in the City of Westminster and the Royal Borough of Kensington & Chelsea have gone up six-fold, from £222,000 ($348,000) to £1.3 million between 1996 and 2012, representing a similar annual increase.

"It is therefore difficult to agree that growth in PLC has been atypical over the last few years and is cruising for a bruising," the firm says. "Of course, taking the short-term view, prices have increased from the depth of the credit crunch by 16.3 per cent per annum. However, for those taking a long term view, this upward correction to hit the long term trend line could be - and was - anticipated."

By contrast, Future of London and the Smith Institute, two think tanks, warned last month that unprecedented growth in overseas investment in London’s property market has created a risk of another housing bubble.

"London’s housing market has become distorted and dysfunctional," the organisations said in a report entitled London for Sale? An assessment of the private housing market in London and the impact of growing overseas investment. "This is partly due to the huge rise in overseas investment in expensive properties for the super-rich. Investment in luxury homes has doubled to over £5 billion a year - five times more than the affordable housing budget for the whole of England for 2011-15 and a third of all loans made for house purchases in London."