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LONDON (Reuters) - Grosvenor Group <GROV.UL>, which owns most of London's upscale Mayfair and Belgravia districts, said the rate of luxury home price growth in the capital looked unsustainable after years of foreigners pouring cash into the safe-haven market.
Luxury home prices have surged 53 percent since 2009, compared with 25 percent in Greater London, as investors sought refuge from Europe's debt crisis, and political uncertainty in the Arab world and Russia, property group Knight Frank said.
The buoyant market has since attracted a slew of commercial developers such as British Land <BLND.L> and Land Securities <LAND.L> while Grosvenor has also cashed in by converting offices back to their original use as homes.
"The extremely high rate of growth over the last two, three years is a thing I'm concerned about and I think it's probably unsustainable," Grosvenor's Chief Executive Mark Preston told Reuters on Tuesday.
"As those crises recede then perhaps there's less interest in capital moving internationally for safe haven reasons," he said. "(And) we're reaching values in prime London that are just extremely high by historic standards."
Preston said Grosvenor would focus on diversifying the business further this year by investing in Canadian residential and British rental homes to offset the risk of slowing price growth in the luxury housing market.
London is the third most expensive place to buy a home after Monaco and Hong Kong at 2,540 pounds per square foot, Knight Frank data showed.
Grosvenor is one of the first major London luxury home owners to warn of the sector's risks.
The firm is controlled by the Grosvenor family, headed by Gerald Grosvenor - the Duke of Westminster - whose 7.4 billion pound fortune placed him at No. 7 in Britain's Sunday Times Rich List last year.
Its London estate, which it has owned for more than 300 years, comprises 300 acres of Mayfair and Belgravia with more than 1,500 homes, shops and offices as well as investments in China, Europe and North America and a fund management arm.
The company said profit before tax rose 12.5 percent to 354.4 million pounds in 2012, driven by central London property price growth and improved operational performance. The value of its property assets was 5.8 billion pounds, unchanged from 2011.
Total return, based on rental income and property prices, fell to 7.2 percent from 9 percent due to losses on a Spanish office park and property revaluations in continental Europe.
(Reporting by Brenda Goh; Additional reporting by Tom Bill; Editing by Louise Ireland)