London Luxury-Home Boom Defies Predictions of StallingPatrick Gower
Central London luxury-home values will climb 4 percent next year, Jones Lang LaSalle Inc. said, doubling its previous estimate as concerns about new taxes on wealthy buyers and foreign owners dissipated.
Prices in neighborhoods such as Mayfair, Knightsbridge and Chelsea will increase 6 percent in 2013, the property broker said, revising its November forecast of little or no growth. Buyers weren’t deterred by the prospect of a proposed mansion tax or new limitations on foreign buyers, Adam Challis, head of residential research at Jones Lang, said by telephone.
Chancellor of the Exchequer George Osborne has raised taxes on luxury-home purchases to narrow Britain’s deficit, increasing the levy known as stamp duty on homes sold for more than 2 million pounds ($3 million) to 7 percent from 5 percent in 2012. The opposition Labour Party has proposed an additional tax on homes worth that much to balance income-tax cuts.
“When the government started to make noises about seriously targeting high-value properties, demand temporarily dropped,” Challis said. “The government ended up creating a fairly pragmatic solution with a number of opt-outs and ring fences for legitimate investment activity in prime London.”
Foreign investors are buying London homes to preserve wealth as political and economic turmoil menace their home markets. A weakened pound has also fueled demand, boosting prices by more than brokers expected.
Luxury-home prices in central London climbed 7 percent in the 12 months through July and are now almost 60 percent above their low during the financial crisis in March 2009, Knight Frank LLP said in a report this week. The average value of this type of property surpassed 2 million pounds for the first time in the second quarter as more purchasers competed for a smaller number of properties on the market, broker Marsh & Parsons Ltd. said last month.
Knight Frank and Savills Plc also revised their predictions to 6 percent growth this year after both estimated that values would be little changed in 2013. Knight Frank changed its predictions last month, saying the currency’s weakness “helped to boost overseas interest and domestic demand has been aided by London’s economic recovery.”
The pound fell about 6.8 percent against the euro in the first half and lost 8.4 percent against the Chinese yuan, according to data compiled by Bloomberg. London luxury-home prices increased by 0.5 percent in July from the previous month, bringing the gain for the past 12 months to 7 percent, Knight Frank said.
A mansion tax probably will be introduced following the 2015 general election, but it will be viewed by investors as an incremental addition to local-government tax, Challis said.
“Price is not the determinant of what you can and can’t buy in this market because people have more than they need to make the acquisitions,” he said. “If I’ve got 100 million pounds in my account and I’m looking at a 4 or 5 million-pound property and the buyer wants 6, if my wife says I have to buy that property, I’ll pay what I need to pay.”