After years of property flops, Blairs net £1m

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Until recently, the Georgian terrace near Hyde Park, purchased for £3.65million as a potential retirement home, has been a disappointing investment for the Blairs. But a surging market in top London houses is poised to make the Prime Minister a property millionaire.

Estate agents say the Blairs' five-storey house in exclusive Connaught Square could be worth more than £4.5million by time he retires this summer.

The increase has been prompted by record Christmas bonuses paid to City bankers. Rich foreign buyers, such as Russian oligarchs and Arab oil sheiks, are also investing heavily in the Central London housing market.

The Blairs bought the property in October 2004 with a mortgage of £3.47million, putting down a deposit of just £180,000. They spent a further £100,000 on refurbishment.

Ed Mead, director of estate agents Douglas and Gordon, said: "In the 'bonus belt' there is continued under-supply and over-demand, but the Blairs' house is in a rarefied area - there are very few properties like it."

Jeremy Karpel, director of TK International estate agents, is selling a house several doors down from the Blairs'. He said: "The market is very strong, very buoyant. It is driven by City bonuses, entrepreneurs, media types and foreign buyers.

"The area around Connaught Square is attracting more affluent, newer buyers."

The success of the Blairs' investment was not always so assured. Local agents estimated that the couple originally overpaid by several hundred thousand pounds. They then struggled to rent it out and were forced to offer a discount to attract tenants.

The Blairs' other property investment - two flats in Bristol purchased in 2002 with the help of conman Peter Foster - is still faring badly. The city centre apartments were bought for around £250,000 each, but local agents say the development has not proven popular and the flats may have even fallen in value.

The Blairs sold their family home in Islington for £615,000 when they entered Downing Street in 1997, but the couple were said to be horrified when it was resold in 2001 for £1.5million.