Increasing residential property taxes, together with the uncertainty surrounding Brexit, have led to a dramatic fall in sales across the super-prime London market, according to a recent report. The findings follow analysis of Land Registry data by specialist advisor London Central Portfolio (LCP).
The latest transaction data, covering the three months to August 2016, reveals there were seven times fewer super-prime sales (£10m+) in comparison to the same period last year. In total only 5 transactions were registered, a huge 86% fall on the 35 sales of super-prime property in the corresponding three months in 2015.
In addition, the average price paid for the top-five transactions fell from £22m to £16.3m – a 25% decline. The analysis found that the hardest hit areas were those outside the Prime Central London market where no sales at all above £10m were recorded during the period under review.
The super-prime new-build market was similarly affected by the downturn. In 2015 this sector accounted for 23% of sales, whereas this year there were no transactions over £10m registered, as buyers sought the greater value found in traditional older stock. As a result of this fall in demand, developers are focusing on dividing large, high-priced properties into flats in order to maximise their opportunities.
LCP anticipates that these findings could have a significant impact on next year’s Stamp Duty receipts. This is because the duties on super-prime properties were expected to compensate for lower duties on properties under £1m. This, in turn, could lead to a further fall in prices.
Naomi Heaton, CEO of LCP, explains; “Despite roughly stable Stamp Duty takings in the financial year to April reported by HMRC, next year may see a different picture, particularly as it took account of a major rush in March. Transactions increased 72% over February as buyers sought to beat the 3% Additional Rate Stamp Duty (ARSD) deadline, buoying overall receipts.”
Despite seeing a rise in individual receipts from ARSD during 2016-17, the research paints a stark picture for Chancellor Philip Hammond. Based on the research, LCP forecasts that the government is set to lose out on £45m of Stamp Duty from the super-prime sector over this period alone.
Although the super-prime sector traditionally experiences greater volatility than the lower value end of the market, Heaton says that these figures are ‘very concerning’ and that continued instability is expected in the luxury market before prices recalibrate themselves and growth returns.
She believes that, as the luxury property market is a significant contributor to the Exchequer and the wider UK economy, the government should consider its position on residential property taxation carefully. This is of even greater importance in the wake of the Brexit vote and the potential of a slowdown in the UK economy. But, amid the gloom in the market, there is some consolation. Thanks to the rapid devaluation of Sterling, overseas investors have renewed their interest in London, which Heaton says, “may be the biggest hope of salvaging a potentially embarrassing and costly situation.”
