The London Magazine: Market Highs & Lows
Mon 01 Dec 2014
Market Highs and Lows: Impact of world events and taxes
Like an X Factor winner, Londons property fortunes in 2014 started off with huge promise, stalled spectacularly, and have been running on empty ever since. Prices rose strongly in the first three months of the year, giving rise to much excitable commentary about whether Londons runaway market was developing into a dangerously unstable bubble. But just as the blossom was fading from the trees, the booming confidence in prime property seemed to evaporate and since late spring prices have at best flatlined, which means that prime London property, the great international success story of the post-Lehman Brothers era, is starting to look like an injured beast limping into an uncertain future in 2015.
Experts are united about the cause of this reversal: Labours promise of a Mansion Tax on all properties worth 2m or more if its wins in next Mays general election. This is a punitive tax, and details of how it would be implemented are still unclear, says Richard Barber, former director of WA Ellis. The worst thing for the market is an anticipated tax with no detail. As a result, many large houses are still on the market, and have seen significant price reductions.
Add to this Aprils Mortgage Market Review linking lending to a buyers ability to make repayments, which made borrowing a slower and more painful process. It could just be that the boom which, since 2009, had seen prime London prices rise by some 40% had simply run its course. The market got carried away during the first quarter of the year and the pace of price rises spooked the market, says Peter Rollings, CEO of Marsh & Parsons.
Other factors occurred beyond the UK. Problems in Ukraine signalled a Russian withdrawal from prime London, as buyers started to invest in transportable assets in anticipation of possible sanctions against them. And the news that, from next April, overseas buyers will have to pay Capital Gains Tax on property sales in the UK has prompted international buyers to rethink their portfolios. This, says Nadiye Morgan, branch manager of Faron Sutaria in Chelsea, has altered the supply and demand dynamic: It has acted as a catalyst for some overseas owners, prompting them to sell now rather than later.
The upshot has been a very clear slowing in the market since April, says Lucian Cook, director of residential research for Savills. Overall prices grew just 1% in the six months following. And at the very top end of the market, homes worth 10m plus, we have seen price falls of 1.3%