Price gains for London’s most expensive homes have stalled this year as concerns that taxes may rise and high asking prices put off even the super rich.
Houses and apartments valued at more than 15 million pounds ($24 million) showed almost no gain in the year through September, compared with rise of about 5 percent for properties from 1.8 million pounds to about 5 million pounds, broker Savills Plc (SVS) said in a report today. Luxury residences outside central London rose by about 10 percent.
“There are a lot of vendors out there who think their house is worth 3,000 pounds per foot because they’ve read that somewhere,” said Alex Michelin, a founder of luxury developer Finchatton Ltd. “The house that got 3,000 pounds was immaculate, brand new, had facilities and technology. Their flat is 20 years old.”
Luxury homes in central London will rise 23.1 percent through 2018, compared with a 25 percent increase for British residences overall, Savills estimated. Properties worth more than 15 million pounds will climb at a slightly slower pace than the rest of the capital’s prime market and the U.K. as a whole, Lucian Cook, head of research at Savills, said in an interview yesterday. Prices at the top end of the London market will be supported by a lack of supply over that period, he said.
London luxury homes had been increasing since September 2009, according to the Savills data. Properties worth 15 million pounds or more showed little or no rise for the first time since about December 2009, the data showed.
Average asking prices for homes in the U.K. capital rose by 10.2 percent to 544,232 pounds last month, Rightmove Plc said in an Oct. 21 report. The property website operator called the rate “unsustainable.”
Home values in London’s best areas including Mayfair, Knightsbridge, Belgravia and Chelsea increased at least 128 percent from mid-2005, compared with a fall of 19.3 percent in the value of all U.K. homes in the same period, broker Savills said in a September report.
Wealthy prospective buyers are being deterred by talk of higher taxes, Finchatton’s Michelin said. Chancellor of the Exchequer George Osborne raised a transaction tax to 7 percent from 5 percent for properties priced above 2 million pounds in March 2012. He is considering imposing capital-gains tax on the second homes of foreign owners of U.K. property, The Telegraph reported last month.
“Clients are saying ‘well, are we welcome here?’” Michelin said. “That’s really what’s causing a pause in the market.”
Such a tax would probably generate very little income for the U.K. treasury because foreign investors tend to buy at the top end of the market and hold the asset for a long time, Rosalind Rowe, a real estate tax partner at PricewaterhouseCoopers LLP, said in an Oct. 31 statement.
Home prices in the borough of Westminster, which includes the affluent districts of Mayfair and St. James’s, have fallen for three months in a row through August, dropping from an average of 1.23 million pounds to 1.1 million pounds, researcher Acadametrics said in an Oct. 11 report.
Top-tier buyers are “not in the mindset where they’re desperate to buy anything at any price,” said Liam Bailey, global head of residential research at London-based broker Knight Frank LLP. “There’s a slightly more sober mindset in that price bracket.”
Will Bax, director of Grosvenor Group Ltd.’s London assets, said he’s cautious about the market for homes worth 5 million pounds or more. The Grosvenor family’s ancestral London land holdings are in Mayfair and Belgravia, districts that are consistently among the world’s most expensive for leasing an office or buying a home.
Two years ago there “was an extraordinary market” for London luxury homes and demand led to a “kind of irrationalism that has probably been tapered slightly,” Bax said.
Foxtons Group Plc (FOXT), a London-based broker, said today that it doesn’t expect to see a significant increase in London property sales for the rest of the year. Berkeley Group Holdings Plc (BKG), a homebuilder focused on London and southeast England whose developments include luxury high-rises, will underperform for the next 12 months because of its exposure to the region, securities firm Davy said in September.
Berkeley hasn’t been doing as well as competitors with more diverse regional presences as housing in areas outside of London recovers, and that “underperformance will continue,” Dublin-based Davy said in a note. Berkeley, which has risen 29 percent in London trading this year, didn’t return calls seeking comment.
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