Luxury home prices in central London rose at their slowest rate in more than two years last month as investors delayed purchases ahead of possible new property taxes, according to Knight Frank.
The average price of a house or apartment in the UK capital's most expensive neighbourhoods climbed 0.4 per cent from October, according to an index compiled by the London-based broker. That's the smallest increase since October 2010, when prices fell 0.2 per cent.
Finance minister George Osborne may introduce levies on homes valued at £2 million (HK$24.8 million) or more in his autumn statement this month.
The UK government is weighing an annual charge of as much as £140,000 on properties owned by offshore companies and may charge capital gains tax on the sale of luxury homes by non-residents who aren't naturalised.
"An air of uncertainty among buyers has greeted the prospect of a new capital gains tax regime and an annual charge," said Liam Bailey, Knight Frank's global head of residential research.
"This element of 'wait and see' in the market from potential homeowners has resulted in a significant rise in prime central London residential stock."
The number of homes available in areas such as Chelsea and Knightsbridge is about 47 per cent higher than the same period a year ago, Knight Frank said.
Sales of properties valued at more than £2 million fell by a third in the quarter to September 30 compared with a year earlier. The biggest decline was in the £2 million to £5 million range, which dropped 44 per cent, Knight Frank said.
Brokers such as Knight Frank, Jones Lang LaSalle and Savills forecast that prime central London home prices will be little changed next year.
A sharp drop in values in the short term is unlikely, Camilla Dell, of Black Brick Property Solutions, which advises prime-home-buyers in southeast London, said in a report.
"The shrinking of bank balance sheets and the increase in lending standards has actually helped create a more stable ownership dynamic," Dell said.
"We therefore see the number of potential 'distressed' sellers as relatively insignificant."
Knight Frank compiles the Prime Central London Index from its own appraisal values of a sample of properties in the 13 most expensive central London neighbourhoods.
Brokers including Savills and Knight Frank define prime central London real estate as homes in the most expensive parts of the city, such as Belgravia, St John's Wood and Knightsbridge.