Stamp duty: has London finally lost its status as the luxury property hotspot of the world?
12-01-2015
The UK's property tax laws have tarnished its high-end housing market in the eyes of the world triggering an exodus of wealth
The first floor flat in Mayfair's Mellier building goes on sale this week, and is being sold by Wetherell
By Anna White, Head of Property
Billed by the agents as the largest flat on the market in London’s West End, a 3,588 sq ft, first-floor apartment in Mayfair’s Mellier building will go on sale today.
With its fine architecture, lofty ceilings, a private lift and £15.95m price tag, it’s the very definition of a trophy home, and 18 months ago – at the height of the mini property boom – would have incited a bidding war.
However, after the Chancellor’s serial assault on wealthy homeowners, second-home buyers and private investors, such deals are no longer guaranteed and for the first time in a decade the capital’s status as the world’s top property hotspot has been shaken.
London Mayfair apartment
The living room in the Mellier
Last December, George Osborne overhauled the antiquated stamp duty system in England, Wales and Northern Ireland, lowering the burden for those buying homes worth less than £937,000, but raising the transaction levy on properties valued above £1.5m to 12pc. Since then, sales in the upper echelons of the London market have fallen sharply.
The sale of homes worth more than £1m dropped by 11pc in the first half of 2015, according to Lloyds Bank, while data from LonRes revealed that the number of London homes sold for £1m to £2m fell 22.5pc from July to September against the same period in 2014. The researchers also found that transactions above £5m fell by 29pc between January and October 2015.
In the £3m to £16m sector of the London market the sales rate has slowed by up to 30pc since the start of 2015
Becky Fatemi, Rokstone Properties
The collision between over-inflated pricing, uncertainty around the general election and the rise in stamp duty has knocked the high-end housing market, triggering a flight of wealth out of the capital to France and New York. David Adams, managing director of the international estate agent, John Taylor, which has been operating in the French market for 150 years, said: “The phones have been lighting up this year with Brits wanting to buy in the Alps and the French Riviera.”
UK buyers have stayed away from France since 2007, when the global financial crisis savagely reduced prices, he explained.
But there has been a surge in activity during the past 10 months.
British buyers in St Jean Cap Ferrat were notable by their absence in 2014, but accounted for 30pc of property sales in 2015.
In Meribel, the number of UK sales rose from 33pc last year to 40pc from January to November.
A luxury chalet in Courchevel 1550 being sold by John Taylor for £3,000,000 Photo: Pascal Pronnier
“They are not buying the really big stuff – the £30m homes on the Cap d’Antibes – rather, they are registering for £1m to £2m holiday homes,” the agent said, “and I put that down to the stamp duty effect.”
Mr Adams said wealthy London families who would look to “trade up” from a £2m mews house to a £3m mansion in Hampstead Heath, for example, are sitting tight. Instead, they are investing in an overseas retreat to avoid the huge UK stamp duty bill.
And it’s not simply deterring those looking to buy a bigger house. Downsizers selling off the family home in central London are not only having to take a discount on the price to shift it, taking into account the stamp duty the vendors will have to pay, but will also incur a tax hit on their next buy.
This has wider implications for the London and UK economy. Mr Adams said: “The tax take will reduce and the economy of London will suffer as thousands stop using services, such as estate agents, solicitors and decorators, and we’ll see a downward spiral in retail that supports property.”
The Chancellor’s Autumn Statement last week will only serve to compound the problem: Mr Osborne has now increased stamp duty by 3pc for those buying a second home.
“The Government is trying to stop middle England investing in property – Mr Osborne clearly wants people’s savings going into pensions instead,” said Mr Adams.
We now have a more punitive tax regime on wealthy property owners than socialist France, where stamp duty is just 5.8pc. Property prices in France is 10pc to 15pc lower than in 2007, whereas London prices are 45pc higher. The exchange rate difference between the pound and euro is also driving Britons to buy over the Channel, said Mr Adams.
According to new research from Deloitte, there are no comparable stamp duty taxes on second homes in France, Spain, Portugal or the US.
Mobility in the British market will suffer as a result of high stamp duty, said Phil Nicklin, partner at Deloitte.
“High stamp duty will now even impact moving from one city to another, as people rethink taking that job offer, to an extent freeing the market. We need people to move out of those big houses, freeing up the chain.”
Mr Adams agreed, saying: “This will feed into the lower price brackets. The property market is like a train of carriages. If you put the brakes on the first-class carriages, you’re a fool if you think there won’t be a delayed reaction further down the train.”
All areas of prime central London saw the number of homes sold above £2m fall compared with the same period a year earlier. In Mayfair there were 23pc fewer homes sold in the year to September 2015 compared with the previous year and 32pc fewer than in the year to September 2013
Peter Wetherell, Wetherell
France isn’t the only country to benefit from the slowdown in London’s £1m-plus housing market. Gary Hersham, the managing director of Beauchamp Estates UK, said 7 to 10pc of his wealthy clients are now enquiring about property in New York.
The estate agent, based in central London, will announce today a joint venture with the New York realtor Leslie J Garfield to capture the increased interest by London investors in the US market.
New analysis by Beauchamp and Dataloft compared eight exclusive neighbourhoods in London and New York, and found that typically the average price for luxury homes in the UK capital was double that in areas such as Manhattan or the Upper East Side.
A family home in Belgravia averages £1,263 per sq ft, while the equivalent in Midtown Manhattan is just £735.
High prices and a punitive tax regime are also making investors in the Middle East think twice about London. According to JLL, clients in the region feel targeted by the UK government for simply wanting to have a bolt-hole in central London.
But Adam Challis, head of residential research at the property group, said despite high moving costs, high stamp duty and high prices, the UK’s safe-haven status is not in doubt.
“Being a safe haven is about far more than value for money, it’s about legal integrity and the knowledge that, unlike many places in the world, your money won’t be taken away by the state,” he said. “It’s not about making money, it’s about not losing money.”
So while stamp duty may not perturb those who feel their investments are more secure in London than their own countries, it’s caused a wave of concern, and has hit the wealthy domestic buyer who is now looking further afield.
“We are now looking at a policy environment that is erratic, inconsistent and politicised. To the risk of rate changes and currency risk, buyers now have to add policy risk,” said Mr Challis.
Perhaps, at last, the new tax environment has tarnished London’s shiny, luxury property market.