London Luxury Homes Seen Losing Luster on Tax Plans

London luxury homes won’t rise in value next year for the first time since 2008 as proposals to extend property-transaction taxes deter buyers, Jones Lang LaSalle Inc. said.

Prices in affluent neighborhoods like Knightsbridge, Mayfair and Belgravia will be unchanged in 2013, the Chicago-based broker said in a report today. Homes across London will gain 2 percent, the most of any part of Britain, Jones Lang said.

“Many potential buyers in the 2 million pound-plus ($3.2 million) market have deferred action until all consultation issues have been finalized,” Jones Lang said in the report, referring to a policy review. “From 2014, we believe the significance of the new tax regime will diminish. There will be fewer reflections on the past, more global city comparisons and a greater acceptance of the new rules.”

Luxury-home prices in London have soared as overseas investors sought less-risky assets. Prime central London prices will rise an estimated 4 percent this year after an 8.8 percent gain in 2011, according to Jones Lang. Values are 16 percent higher than their previous peak in March 2008 and have risen 52 percent since a post-credit crisis low in March 2009, according to Knight Frank LLP.

Prime Minister David Cameron targeted the wealthy to pare a record budget deficit by lifting a transaction tax to 7 percent from 5 percent on homes sold for more than 2 million pounds. On top of increasing the stamp duty, the government is weighing an annual charge of 140,000 pounds on homes owned by offshore companies and valued at more than 20 million pounds.

Similar Forecast

Knight Frank, like Jones Lang, forecast that London luxury-home prices will be little changed in 2013. That would be the worst year for properties with an average value of 3.7 million pounds since 2008, when values slumped by about 17 percent, according to the London-based broker.

Britain came out of a double-dip recession in the three months through September with its strongest growth since 2007. Recent data has shown signs of weakness and the recovery has been uneven. Manufacturing data last week showed output barely grew in September, indicating the economy’s rebound lost some momentum, while services and factory surveys signaled cooling activity in October.

“London and Southern England are expected to see stronger economic and employment growth in 2013,” Jones Lang said. “Better job opportunities and prospects in and around London will continue to lure U.K. and international migrants. Stronger housing demand will be an inevitable consequence.”

The U.K.’s biggest decline next year will be in Wales, where home prices will fall 3 percent, Jones Lang said in the report. That’s followed by a 1.5 percent decrease in England’s northwest and Yorkshire and Humberside regions. U.K. values will gain 1 percent in 2013 and 2.5 percent the following year, according to the broker.

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