Demand for London homes under construction slumped by 33 percent in the first quarter as a new tax on overseas buyers and high values damped demand.
The number of homes sold prior to completion in the U.K. capital fell to 5,947 from a record high of 8,927 a year earlier, according to data compiled by Molior London that was seen by Bloomberg News. Molior declined to comment.
“Affordability is still a huge issue for domestic buyers,” said Faisal Durrani, head of research at broker Cluttons LLP. “New builds in the higher price echelons normally appeal to international investors, but lots of uncertainties in their own economies -- such as currency issues and the drop in oil prices -- have led to a slowdown in purchases from a year ago.”
Demand has fallen for new homes in London after the government raised sales taxes, introduced a capital-gains levy for overseas buyers and said it plans to cut tax breaks for the wealthiest landlords. Developers in central London are offering institutional investors discounts of as much as 20 percent on bulk purchases as the tax changes limit demand from private individuals.
“There have been very few higher-end expensive sold in the central areas this year,” said Matthew Jackson, an associate director at real estate broker Chestertons. “Some of the volume has been taken up in the lower price ranges, where we have got investors who are looking well beyond the center.”
Investors who acquired apartments before construction commenced, betting they would rise in value, are seeking to sell the properties before they’re completed and stamp duty has to be paid.
“Developers are competing against their own customers in the presale market, so someone has to either pull back or discount,” Colin Sheridan, an analyst at J&E Davy Holdings Ltd., said by e-mail.
About 6,379 new homes were started in the first three months of the year, 39 percent less than a year earlier and the lowest number for seven quarters, the Molior data shows.
Berkeley Group Holdings Plc, London’s biggest homebuilder, was little changed at 1:45 p.m. in the U.K. capital, after climbing as much as 2.3 percent earlier. Barratt Developments Plc, the U.K.’s No. 3 homebuilder, also gave up earlier gains, while Persimmon Plc added almost 1 percent.
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