High-End London Property to Outperform the Rest of UK Housing Market

Bloomberg reported on 11 January 2013, citing Knight Frank’s latest Housing Market Forecast, that this year, London’s most expensive residential properties will outperform the rest of the UK housing market as cash-rich investors shrug off property-tax increases implemented last year.

The London-based real estate consultant estimates that prices in the high-end housing market of properties above £10 million will climb as much as 5 percent in 2013, after last year, buyers competing for fewer properties pushed up values by 6.9 per cent.

Head of residential research at Knight Frank, Liam Bailey,said: “The demand for luxury London homes from overseas buyers looking for a safe-haven for their money, as well as a slice of London life has helped drive price increases.This growth might have continued into next year, albeit on a more modest basis as prices bumped a ‘natural ceiling’, but government policy is set to have an impact on the market next year.”

According to Bailey, while price rates are decreasing for homes costing an average of £3.7 million, which Knight Frank defines as luxury properties, demand for super-prime London houses has not abated.According to data compiled by the consultant’s research team, in the nine months through September 2012, there were 98 residential property deals valued at £10 million or more — up from 94 a year earlier and 74 in 2010.

UK Property-Tax Increases Affect Market

Many luxury homes in the UK are owned by shell companies set up in tax havens to avoid transaction levies and to remain anonymous. In an effort to help trim the UK’s record budget deficit, in March, Chancellor of the Exchequer George Osborne’s announced measures targeting such companies. In Britain’s 2012 annual budged, Osborne introduced a 15 percent stamp duty on all real estate assets bought by foreign companies, while the levy on all other properties sold for more than £2 million was raised to 7 percent from 5 percent.On top of that, from April this year, homes valued at £2 million or more and owned by offshore companies will be charged £140,000 a year in additional tax. The UK government also announced the introduction of capital-gains tax on home sales by owners who are non-resident and non-naturalised, if the value of the property deal exceeds £2 million.

Knight Frank: Wealthy Investors Undeterred by Taxes on London Luxury Property and Prices Poised for Modest Increase

In December, following the round of tax increases, high-end property prices in London areas like Mayfair,Kensington and Knightsbridge rose at their slowest rate in more than two years as foreign buyers delayed purchases.According to data compiled by Knight Frank,prior to the new taxes, about 32 percent of properties worth £10 million and more were purchased by offshore companies, while after their introduction, the rate fell to 3.8 percent. The real estate consultant has also said that the taxes have mostly affected those luxury assets in the range of £2-5 million, with sales in this bracket falling 44 percent in the third quarter of 2012 from a year earlier. For homes valued at £5 million and up, the decline was 13 percent, while sales of residential properties which cost £2 million and below rose by 13 percent. 

UK House Prices Poised for Modest Decline before Recovery in 2014

Knight Frank’s report also predicted that across the UK, average house prices would take another six years to reach their 2007 peak. The consultant suggests that house prices would fall by 2 per cent this year before a modest rise in 2014 which would mark the start of the recovery. The consultant further states that Scotland and Wales would experience the greatest decline in house prices this year