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Luxury London home prices seen rising 21.5% in next five years

[MADRID] Luxury-home values in London's central neighbourhoods will climb 21.5 per cent over five years as global economic growth and the increasing fortunes of wealthy buyers boost demand.

There will be a dip in values of 2 per cent this year in the capital's best locations, where average prices start at about 5 million pounds (S$10.7 million), because of higher taxes, according to a report by London broker Savills Plc. In other prime areas, which are less affected by new stamp duty charges, prices are expected to rise by 2 per cent this year and by 18.2 per cent through 2020.

Sales of luxury homes have slowed since Chancellor of the Exchequer George Osborne increased the sales tax in December. The levy escalates to 12 per cent on every pound a buyer spends above 1.5 million pounds, with the purchaser of a 5 million-pound home paying 513,750 pounds in duty, almost 164,000 pounds more than before.

"The stamp duty reform of December 2014 was a defining moment for the top end of the prime London market, particularly as it was looking fairly fully priced having grown significantly to outperform the rest of the market over a 10-year period," Lucian Cook, head of UK residential research for Savills, said in the report.

The tax changes took the market by surprise and leave little room for price increases while the market adjusts to the new regulatory environment, according to Cook.