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May 5, 2013 4:15 pm
London’s high-end homes have continued to rise in value on the back of strong overseas demand, defying expectations that growth would peter out this year because of the government’s tough stamp duty measures.
Average prices for prime central London property rose 0.7 per cent in April, leaving values up nearly 3 per cent in the year to date, according to new data from Knight Frank, the upmarket estate agent, which specialises in high-value property transactions.
Over the past 12 months, prime property prices increased 7.7 per cent in the capital.
The growth comes in spite of predictions by four of the big high-end estate agents of zero-growth in 2013 because of the impact of government’s stamp duty measures introduced in last year’s Budget.
George Osborne, the chancellor, raised the stamp duty payable on sales of property above £2m from 5 to 7 per cent, and introduced a 15 per cent charge on properties bought and sold through offshore corporate vehicles.
He also announced plans for a new annual levy and capital gains tax charge for homes held in a corporate vehicle, which came into effect last month. The Treasury is hoping to raise £30m annually from these measures.
The estate agent’s research shows how the dynamics of the London market have changed in response to the new levy.
Although there was a 16 per cent fall in the number of sales of properties priced between £2m-£3m in the capital in the 12 months to the end of March 2013, there was a corresponding 6 per cent rise in the number of transactions of properties worth less than £2m.
This suggests that some sellers are reducing property prices below £2m in order to escape the higher 7 per cent levy.
However, the number of transactions of properties priced above £3m over the same period remained static, suggesting that the wealthiest buyers have not been deterred by the additional 2 per cent charge.
“All things being equal, the impact of the tax change appears to fall off to almost zero for [properties priced] above £3m,” said Liam Bailey, head of residential research at Knight Frank.
Mr Bailey added that he expected the long term impact of the new 7 per cent top rate would be to reduce transactions in the £2m-£3m bracket by about 5 per cent below the level they would otherwise have been.
Despite these fluctuations, many central London estate agents report that overall demand for homes in affluent pockets of central London has returned since the start of the year, driven largely by overseas buyers.
Savills, the high-end estate agent, said the unexpected price growth this year can partly be explained by falls in the value of sterling, meaning London still looks relatively cheap to overseas buyers.
“There is little sign of foreign appetite going away,” said Ed Mead, director at London-based estate agent Douglas & Gordon.
According to Knight Frank, US dollar-denominated buyers can purchase trophy homes in the capital at the equivalent of a 7 per cent discount to prices at the peak of the market in 2008, while investors from Hong Kong have a 11 per cent discount. In comparison, UK buyers are having to pay a 17 per cent premium.
The agent expects prices to continue to look relatively attractive over the next five years for foreign investors. Based on currency forecasts from the Economist Intelligence Unit, it has calculated that by 2018, prices of prime London property in US dollars will be the equivalent of 6 per cent higher than the previous market peak – compared to 47 per cent for UK buyers.
“I think a lot of people have looked at the [central London] market over the past two years and thought, at what point does this slow down?” said Mr Bailey.
“We were probably more nervous than we should have been, as it doesn’t seem to have had the impact that we expected.”
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