London luxury-home prices rose at the fastest pace in five months in September as more buyers sought properties costing less than 2 million pounds ($3.2 million) to avoid a sales tax that was increased last year, Knight Frank LLP said.
The average value of a house or apartment in the city’s most expensive neighborhoods climbed 0.7 percent from August, an index compiled by the broker showed. That brought the gain for the past 12 months to 7 percent.
Homes selling for less than 2 million pounds in districts such as Chelsea and Knightsbridge have climbed 16 percent since the government in March 2012 raised a transaction tax known as stamp duty to 7 percent from 5 percent for properties priced above that level. Values for properties subject to the tax gained 8.7 percent, the broker said.
“The stamp duty issue is definitely in effect,” Liam Bailey, global head of residential research at London-based Knight Frank, said by phone. “There’s no doubt that investors have been concentrating their firepower in the 1 million-pound to 1.8 million-pound bracket. That’s been pushing that market.”
Prices in central London have climbed for 35 straight months. Although the rate has slowed, the market’s strength this year has exceeded most brokers’ expectations. Knight Frank as recently as June said there wouldn’t be a significant price increase this year. A month later, the firm forecast a 6 percent gain.
“There’s a push-back from buyers,” Bailey said. “It’s a discretionary market and people are looking for value. They aren’t desperate to buy anything at any price.”
Notting Hill and the City of London financial district led the increases with gains of 1.5 percent and 1.4 percent, respectively, in September. Belgravia, where values declined 0.2 percent, was the only neighborhood that didn’t see a gain.
Prime Minister David Cameron repeated his objection to an annual tax on houses valued at more than 2 million pounds. The levy, known as the mansion tax, is supported by opposition Labour Party leader Ed Miliband as well as Nick Clegg, head of the Liberal Democrats which govern in a coalition with Cameron’s Conservative Party.
“To go after someone’s house every year with a wealth tax, I don’t think that is a sensible thing to do,” Cameron said in an interview with the British Broadcasting Corp. yesterday in Manchester, England.
Rents in prime central London fell 0.1 percent in September from the previous month, the fourth-straight decline, Knight Frank said in a separate report. Rents dropped 2.5 percent on an annual basis.
“There was a lot of firing in the financial sector in 2012 and that undermined rents,” Bailey said.
Job vacancies at London’s financial-services companies fell 9 percent in the first half as firms tried to keep a lid on costs. New vacancies in the City of London and Canary Wharf districts dropped to 45,675 from 50,337 a year earlier, London-based Morgan McKinley said in July.
The areas covered by Knight Frank’s Prime Central London Index include Belgravia, Chelsea, Hyde Park, Islington, Kensington, Knightsbridge, Marylebone, Mayfair, Notting Hill, Regent’s Park, St. John’s Wood, the Thames riverfront from Battersea Bridge to the Shard, as well as the City and its periphery.