London luxury home gains defy predictions
Broker doubles estimate on luxury homes as concerns at impact of proposed mansion tax on wealthy, foreign buyers evaporate
Central London luxury home values will climb 4 per cent next year, Jones Lang LaSalle said, doubling its previous estimate, as concerns about new taxes on wealthy buyers and foreign owners dissipate.
Prices in areas such as Mayfair, Knightsbridge and Chelsea would increase by 6 per cent this year, the property broker said, revising its November forecast of little or no growth. Buyers were not deterred by the prospect of a proposed mansion tax or new limits on foreign buyers, said Adam Challis, head of residential research at Jones Lang.
Chancellor of the Exchequer George Osborne raised taxes on luxury home purchases to narrow Britain's deficit, increasing the stamp duty on homes sold for more than £2 million (HK$23.8 million) to 7 per cent from 5 per cent last year. The opposition Labour Party has proposed an additional tax on homes worth that much to balance income-tax cuts. "When the government started to make noises about seriously targeting high-value properties, demand temporarily dropped," Challis said. "The government ended up creating a fairly pragmatic solution."
Foreign investors are buying London homes to preserve wealth as political and economic turmoil menace their home markets. A weakened pound has also fuelled demand, boosting prices by more than brokers expected.
Luxury home prices in central London climbed 7 per cent in the 12 months to July and were now almost 60 per cent above their low in the financial crisis in March 2009, Knight Frank LLP said in a report last week. The average value of this type of property surpassed £2 million for the first time in the second quarter as more purchasers competed for a smaller number of properties on the market, broker Marsh & Parsons said last month.
Knight Frank and Savills also revised their predictions to 6 per cent growth this year after both estimated that values would be little changed in 2013. Knight Frank changed its predictions last month, saying the currency's weakness "helped to boost overseas interest and domestic demand has been aided by London's economic recovery".
The pound fell about 6.8 per cent against the euro in the first half and lost 8.4 per cent against the yuan, according to data compiled by Bloomberg. London luxury home prices increased by 0.5 per cent in July from June, bringing the gain for the past 12 months to 7 per cent, Knight Frank said.
A mansion tax would probably be introduced after the 2015 general election, but investors would view it as an incremental addition to local-government tax, Challis said.
"Price is not the determinant of what you can and can't buy in this market because people have more than they need to make the acquisitions," he said.
"If I've got £100 million in my account and I'm looking at a £4 million or £5 million property and the buyer wants 6, if my wife says I have to buy that property, I'll pay what I need to pay."