Tax changes have resulted in a noticeable decline in interest in property worth over £2 million in most regions of the UK, it has been revealed.
The highest activity in the prime property sector in the third quarter of 2012 has been in the £1 million to £2 million price range, according to the Buying Solution, the independent buying consultancy of Knight Frank.
The super wealthy are turning their backs on London and looking to the Home Counties where there has been a substantial increase in transactions in the £15 million plus range and good quality farm land is also selling well.
‘In both the London and country markets, there has been a noticeable falling away of interest in property above £2 million which is almost certainly due to the stamp duty increases announced in the March 2012 Budget. We believe that a number of buyers are sitting on their hands awaiting the outcome of the proposed annual Capital Gains Tax charges on properties priced above £2 million owned by non-natural persons,’ said Philip Selway, managing partner and head of London at the firm.
‘This does not appear, however, to deter wealthy overseas buyers, who continue to drive the prime central London market with investment as well as lifestyle purchases. The continued global financial uncertainty, particularly in a number of European countries, means that the UK is even more attractive to the overseas buyer, not only because of history and culture, but also because of political stability and a secure legal system,’ he explained.
‘In the long term, I don't expect that increased property taxes will deter buyers; they might lower values around the £2 million price range perhaps, but people do tend to carry on as normal once they have assimilated tax changes into their financial structures,’ he added.
In the Home Counties of Berkshire, Buckinghamshire, Surrey, South Oxfordshire, and West Sussex the majority of the market activity has been focused on property priced up to £1.5 million. Nick Mead, associate in the Home Counties, said that most buyers are needs driven UK buyers who are moving out of London for schooling and more space.
He pointed out that the £2 million to £3 million market has been significantly affected by the increase in stamp duty, and the proposed mansion tax has further dampened this market. ‘We're seeing a continued flurry of price reductions which, if anything, has grown in recent weeks. Ultimately, those who are likely to bear the brunt of a mansion tax are likely to be those who are already suffering the effects of middle class poverty, that is the asset rich and the cash poor,’ he said.
‘The sooner plans for the mansion tax and proposed higher rate council tax bands are finalised, the better, as the uncertainty and speculation is weighing heavily on the market. On a short to medium term basis, it is likely to actually lead to a reduction in the revenue that the exchequer might receive due to a fall in transactions,’ he added.
Mark Lawson, partner and head of the Home Counties team, added that the top end of the market has been incredibly active. ‘To our knowledge, in 2010, there was just one transaction at £15 million plus, last year there were eight in total, and this year, there have already been 12,’ he said.
‘This increase in transactions has been fuelled by international buyers who are seeing better value outside of prime London with prices approximately £1,000 per square foot for a top quality property in the Home Counties, compared to more than £6,000 per square foot in prime central London,’ he explained.
In the Southern region covering the M3/M4 corridors including West Berkshire, Hampshire, Wiltshire, Dorset and Somerset, there have been fewer transactions that the third quarter of last year.
In the Cotswolds and central region covering Gloucestershire, Oxfordshire, Warwickshire, Northamptonshire, Herefordshire, Worcestershire, the market is more buoyant than a year ago.
‘We are seeing most activity in the £1 million to £2 million price range which is unsurprising in light of the increase in stamp duty. There have been some significant sales at the £5 million plus level which just shows that best in class properties will always create interest, especially if within a one to one and a half hour journey from London,’ said Bobby Hall, head of the Southern region.
‘However, the biggest issue as we head into the autumn market is supply, and what does come onto the market needs to be correctly priced to spark interest. Buyers are prepared to purchase, but only if the price is right. If a house looks expensive, it can be quickly dismissed,’ he pointed out.
He explained that in towns such as Oxford and Cheltenham the market is still pretty strong due to the usual pull of good schooling. Further out where there are now fewer second home buyers there are some good deals to be had.
Good quality farmland is still selling well despite the weak harvest this year, according to Mark Lawson, the firm’s head of Home Counties and Country Estates, partly due to their being less on the market this year compared to last year, leading to a shortage of good quality farmland to purchase.
He added that as there are still good tax advantages for investing in farm land it is still deemed a good investment.
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