By Chris Spillane (Bloomberg)
The British government’s plan to raise a tax on luxury-home purchases sparked a last-minute dash by real-estate brokers to wrap up deals before the deadline hit in March. They needn’t have bothered.
Sales of homes valued at 2 million pounds ($3.2 million) more than doubled in May from a year earlier, according to the most recent data available from the Land Registry. After a 40 percent decline in April, sales rebounded as overseas investors took advantage of the U.K.’s status as a haven from economic and political turmoil.
"Money is leaving the euro zone and being spent on a safe asset,” Matthew Pointon, an economist at researcher Capital Economics, said. "Safe-haven flows outweigh the increase in the stamp duty.”
Luxury homes have held their value better than cheaper residential properties in the U.K. because of a scarcity of prime real estate for sale, particularly inLondon. That has led to record prices paid for homes in the city’s Mayfair, Kensington and Knightsbridge districts.
Chancellor of the Exchequer George Osborne’s annual budget targeted luxury-home purchases to help narrow Britain’s record deficit. He raised a transaction tax known as stamp duty on homes sold for more than 2 million pounds to 7 percent from 5 percent. The use of corporations set up in offshoretax havenssuch as the Cayman Islands to avoid the tax spawned a 15 percent levy on purchases of homes by companies.
In May, 113 houses and apartments in the U.K. sold for more than 2 million pounds, up from 45 a year earlier, according to the Land Registry. In London, sales jumped to 97 from 40, led by investors from mainland Europe and the Middle East.
Homes valued at 10 million pounds or more gained 2.9 percent in price in the three months after Prime Minister David Cameron’s Conservative-led coalition increased the stamp duty, London-based Knight Frank LLP estimates. Home prices in London’s most expensive areas have gained 49 percent since a March 2009 low point and are now 14 percent higher than the previous peak in 2008, the property broker said in a Sept. 3 report.
"London has been extremely hot,” Yolande Barnes, head of residential research at broker Savills Plc (SVS), said in a phone interview. "This was a record quarter, but it’s been pretty strong even before that.”
Small tax increases for the ultra-wealthy individuals aren’t likely to deter them from buying luxury residences in central London, according to Charles Leigh, a director at broker CB Richard Ellis Group Inc. (CBG)
"A percent here or there isn’t a major threat,” Leigh said in an interview.
There are 10,760 ultra-high net worth individuals living in Britain, according to Wealth-X, which works with luxury brands and banks to build a database of people who collectively hold $10.7 trillion of wealth. They’re defined as U.K. residents with net worth of at least $30 million, and together they have combined assets of $1.3 trillion.
The U.K. capital is home to 5,955 "ultra-wealthy” people, more than twice as many as Paris, which has 2,820, according to Wealth-X. Zurich ranks third among European cities with 1,775.
Aldine Honey, proprietor of her own luxury real estate brokerage, handled the sale of a 28.1 million-pound home in London’s Mayfair neighborhood in May, the last month for which U.K. Land Registry was published.
"It’s extraordinarily positive considering the 7 percent stamp duty,” Honey said in an interview. "Wealthy people still consider London a safe haven.”
Britain’s government is weighing an extension of a capital- gains tax on homes valued at more than 2 million pounds held by unnaturalized non-residents. Some brokers, such as W. A. Ellis, aren’t sure that overseas investors can withstand further taxes on the U.K.’s luxury homes. Some property owners may want to get out while they can, said Richard Barber, a partner at the firm.
"You’re not going to want to get stumped for capital gains,” Barber said.
Doubts about whether luxury-home prices can maintain upward momentum have arisen amid a predicted wave of new building. Builders plan to complete more than 15,000 houses and apartments in London over the next decade to keep up with demand for properties in the city’s traditional prime neighborhoods, according to consulting firm EC Harris LLP.
The 10-year development pipeline increased 70 percent from a year earlier and companies now expect to construct homes with a sales value of 38 billion pounds, EC Harris said Sept. 3. About 3,800 units are expected to be completed in 2016, more than seven times this year’s total of 500.
"There may be a question mark about the sustainability of some of the price growth we’ve seen in the last year or two in certain areas of super-prime London, which has been phenomenal,” said Mark Farmer, head of residential at EC Harris, in an interview.
Brokers such as Savills are making contrary forecasts. The market will regulate the supply of prime central London homes to a greater extent than has been predicted, according to Savills’ Barnes.
"There will be no vast overhang of stock by 2015 because developers will provide a variety of product in different locations and at different price points, tapping into different market segments,” Barnes said in a statement. Not all projects with planning permission will be built immediately, she added.
About 830 hectares (2,050 acres) of land were released for residential development by planning authorities in London over the four years through 2009, a drop of 10 percent from the same period through 2004, broker Jones Lang LaSalle Inc. (JLL) said in February. That’s prompted developers to renovate older office buildings as homes as buyers hold on to prime London residences for longer and help drive up prices.
Brokers including Savills and Knight Frank define prime real estate as homes in the most expensive central London neighborhoods such as Belgravia, Kensington and Knightsbridge.
An apartment at One Hyde Park, the U.K.’s most expensive residential complex, was put up for sale Sept. 3 with an asking price of 65 million pounds. The 9,000 square-foot (836 square- meter) property in Knightsbridge has four bedrooms and takes up an entire floor of the building, according to a statement by Aylesford International, the broker managing the sale.
"The main feature of any of these deals and the prices they’re achieving is that there’s such little stock” of luxury homes available, Honey said.