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Sales of top-end London property slump

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19/11/2012
In Greater London, sales of multi-million pound homes have decreased by 53% as the effects of new tax legislation takes hold.

According to London Central Portfolio (LCP), in Greater London the number of sales under £2m held almost steady in the third quarter of 2012, registering just a 1% drop on Q3 2011.

However, sales of those properties priced between £2m and £5m dropped by 53% in that time.

LCP also reported that, despite the growth in demand for properties in Prime London Central, sales in this sector were also down by almost 9% versus the same quarter last year.

This is in contrast to the more encouraging news in England and Wales where transactions have increased by over 3% during the last 12 months.

According to the report, this fall in PLC is ‘almost definitely a result of the uncertainty and negative sentiment caused by the tax changes announced in the 2012 budget’.

In March, the government introduced a stamp duty to 7% for people buying property over £2m in their own name and 15% for companies.

They also revealed plans, yet to be confirmed, to impose an annual charge of up to £140,000 per annum on properties held by these companies as well as a new capital gains tax on their sale.

London Central Portfolio said that this will hit the Capital the hardest where 77% of properties over £2m are located.

Hugh Best, LCP’s head of investment, said: “Greater London as a whole reflects the pulse of the domestic economy and the consequence of a fall in transactions between £2m and £5m of over 50% is very concerning.

“PLC is the heart beat of the private rented sector and it is clear that investors are holding back until there is a clear direction expressed by the government.

“The UK has always been seen as a politically and economically stable environment and, as such, a safe haven for investors’ funds. Whatever the outcome of the Government’s deliberations, confidence in the UK has undoubtedly been shaken.”

According to the LCP, deterrent to investment created by the new legislation, coupled with uncertainty of what will be revealed in December following the Government consultation period, means investors have adopted a ‘wait and see’ attitude.

 

This is said to have a ripple effect which is also affecting properties below the £2m mark.

According to Land Registry, overall transactions sub £5m have fallen by 11% versus the same quarter last year. Data issued by other industry pundits, such as Knight Frank and Savills, put the fall in transactions between £2m and £5m at as much as 25%.

In their report, LCP demonstrates that the PLC private rented sector represents a hive of business activity which stimulates economic growth and that the changes would have punitive economic effects.

They estimated that, by the next election, there will be a loss of £509m to the economy, equivalent to 13,000 jobs, and a net loss to the Exchequer.

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