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Investors give prime London homes a miss

Higher sales taxes introduced in December depressing luxury market as buyers turn to cheaper areas such as Hackney
Monday, August 10, 2015 - 05:50
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LESS EXPENSIVE: Home prices in the seven months through July fell 2.3 per cent in Chelsea and 2.1 per cent in Knightsbridge.

London

LONDON'S swankiest neighbourhoods of Knightsbridge and Belgravia are becoming no-go areas for even the wealthiest property investors.

They are being driven out by higher sales taxes introduced by Chancellor of the Exchequer George Osborne in December, which rise to as much as 12 per cent of the cost of the most expensive homes.

Buying agent Camilla Dell says that her clients are spending an average of £2 million (S$4.3 million) less on each transaction this year and they're more interested in cheaper areas such as Hackney and Shoreditch. That's because an investor buying a £5 million home pays almost £364,000 more in tax than if they spent the same amount of money on 10 apartments costing £500,000 each.

Mr Osborne has "really depressed" the luxury market, said Ms Dell, managing partner at broker Black Brick Property Solutions. Investors "are still spending the same amount, but they'll split it up between several properties in the sub-£1 million market", she said.

Through July 23, Black Brick Property advised clients on 25 home purchases with an average value of £1.5 million compared with 12 deals averaging £3.54 million in the same period last year.

Sales of London homes for £2 million or more fell by a third in the second quarter from a year earlier, according to property data provider Lonres.

With investors now buying more homes in less expensive districts, prices below Mr Osborne's threshold are climbing and owner-occupiers, who should have benefited from his tax cuts, are being penalised, Ms Dell said.

The tax increases kick in at £937,000; those buying for less now pay a lower levy. The 12 per cent rate is paid on the portion above £1.5 million.

"The very buyers Osborne was setting out to help, he's put at a disadvantage," said Ms Dell. "At the same time, sales at the higher end have frozen. It was a very, very bad move."

The number of investors registering an interest to buy a home in prime central London with Hamptons International fell 10 per cent in the first half compared with the same period last year, said Johnny Morris, head of research at the broker.

Investors who buy multiple apartments for about £500,000 in London typically receive a rental yield of 4 per cent to 5 per cent, compared with about 2 per cent for a luxury home in London's best districts, Mr Morris said.

Chestertons brokered the sale of the final 11 apartments at Providence Tower in east London to a single investor in May, said Cory Askew, director for Canary Wharf and the docklands. The project is due to be completed next year.

In Kensington and Chelsea, the UK's most expensive property borough, 137 homes were sold in April, the lowest monthly total since March 2009, according to the Land Registry.

Values in some of the borough's best districts have been falling since the stamp-duty changes, according to broker Knight Frank LLP. Prices in the seven months through July dropped 2.3 per cent in Chelsea, 2.1 per cent in Knightsbridge and 0.6 per cent in Notting Hill, according to data compiled by the broker.

The decline in values in prime central London "is a temporary correction but I think (values) will eventually continue to grow", said Giles Hannah, senior vice-president at Christies International Real Estate. "That's because there has been historical shocks before and the market has recovered."

About 5,000 UK homebuyers paid the higher stamp-duty levies in the first half, two-thirds of them in London, according to the Nationwide Building Society. If the levies had been raised a year earlier, 6,900 purchasers would have been affected, Nationwide estimates.

The average value of a London home sold by broker Savills plc fell by £200,000 to £3 million in the first half of the year, compared with the same period in 2014, while transactions fell 15 per cent in the period, the broker said on Thursday.

"The buyers' market has returned," William Carrington, chairman of data researcher Lonres, wrote in a report on London's best districts last Monday. "I do not see an improvement in market conditions before September." Bloomberg