10 June 2015, Bloomberg
by Patrick Gower and Neil Callanan
The U.K. luxury-home market’s predicted rebound from a national election slump is failing to materialize in London as buyers push back against record prices.
“For some vendors, the champagne has perhaps gone to their heads,” said Camilla Dell, managing partner at broker Black Brick Property Solutions. “They want to stick to their asking prices now and in some instances they’re actually putting their prices up.”
Realtors across the British capital saluted the Conservative Party’s May 8 victory because it spelled an end to plans for a mansion tax and rent controls proposed by the losing Labour Party. Nathalie Hirst, an independent buying agent, predicted a “wall of money” would flood the luxury-home market.
That money isn’t being spent as buyers, already discouraged by years of tax increases, balk at some valuations. Home prices in London’s priciest districts climbed 2.3 percent in May from a year earlier, according to a report last week by broker Knight Frank, the slowest growth since November 2009.
“We had a seller, he had his home on the market at 15 million pounds ($23 million) and he pushed it to 18,” following the election, said Alex Newall, managing director and founder of broker Hanover Private Office. “It’s not suddenly worth 3 million pounds more just because the election is out the way.”
The election result lifted shares of London-based brokers and homebuilders. Foxtons Group Plc climbed about 9 percent on May 8, the day the outcome was announced. Berkeley Group Holdings Plc rose almost 10 percent.
Pre-election jitters meant that 79 homes were sold in the 10 districts of prime central London during the three weeks following May 8, according to property data provider Lonres. That’s down from 146 during the same period last year and 120 in the three weeks before the election.
Buyers of the U.K.’s most expensive homes have faced steadily increasing costs as the government raised taxes, culminating in an increase in the stamp duty transaction charge in December.
A purchaser of a 4 million-pound home would have paid 161,880 pounds in tax in 2007, according to Savills Plc. The same home, now worth 5.5 million pounds as prices climbed, would saddle the buyer with a 572,000-pound tax bill.
That’s starting to hurt valuations, according to Knight Frank, and prices in Knightsbridge, Chelsea, Kensington and Notting Hill are now falling, according the firm.
“The stamp duty change came on top of a series of other tax revisions, all of which followed an exceptional period of growth during the financial crisis,” said Tom Bill, head of London residential research at Knight Frank. “The notion of a sudden return to double-digit annual growth or any sense of ‘business as usual’ is unfounded.”