Fears of proposed 'mansion tax' hit prices of luxury property in London

Anup Pankhania had to cut the offer price for flats he is developing in London's Bloomsbury district by as much as £500,000 (HK$6.24 million) because of a luxury-home tax that does not exist yet.

The discounts are just one example of price increases for the best London homes stalling after over five years of gains as investors wait to see if Britain's Labour Party will take power next year and impose a promised annual "mansion tax" on properties valued at £2 million or more. Owners of second homes who are based abroad would pay more than those who possess a single British property and live in it.

"There's too much uncertainty and that rings in the ears of all the buyers," said Pankhania, managing director of developer Jaspar Group of Companies. "Foreign investors get worried and that's a direct effect of all these politics to do with this mansion tax."

Prices of the city's most expensive homes rose at the slowest pace in more than three years in the third quarter, according to London-based broker Marsh & Parsons. A new tax will add to concerns among overseas buyers who are already contending with a rising British pound as well as a series of levies imposed by Prime Minister David Cameron's coalition government.

The eight flats in Jaspar's Bloomsbury project were valued at an average of about £2 million before the price cuts, Pankhania said. The central London boroughs of Westminster and Kensington and Chelsea contain 46 per cent of homes valued at £2 million or more in all of England and Wales, broker Knight Frank estimates.

"Every investor has a choice and they don't need to choose London," Nick Candy, the property developer who helped conceive the One Hyde Park apartment project, said at a conference this month. The luxury-home market "may have a slowdown towards the back end of this year, and maybe even a pause next year, before we know who's going to be in power".

One Hyde Park was completed in 2011 in the Knightsbridge neighbourhood and it has secured some of the highest prices ever paid for flats in the capital, including one that was valued at as much as £175 million when it sold in April.