Prime property prices in central London rose 3.7 per cent in the third quarter and reached a new average high of about £1.3 million (£2.1 million) - an amount over five times greater than the broad average price of £249,958 in England and Wales, new figures show.

Quoting results from the UK's HM Land Registry, London Central Portfolio said the price growth was the result of "exceptional performance" for super-prime property. The £5 million-plus sector, where investors are less price-sensitive and likely to be buying for owner occupation, registered 60 transactions in the last quarter - a staggering 88 per cent increase over the same quarter last year.

However, the number of transactions fell by 9 per cent in Q3 to 5,226 over the year, as the effects of the new tax legislation "begin to bite". Greater London sales in the £2-£5 million sector also decreased by over half (53 per cent), while the number of sales under £2 million in this area held steady, logging a 1 per cent drop in transactions versus Q3, 2011.

Tax burden

London Central Portfolio attributed the fall in transactions in prime central London as "almost definitely" a result of the uncertainty and negative sentiment caused by the tax changes announced in the 2012 budget. In March, for example, the government introduced a "double-whammy", increasing stamp duty to 7 per cent for people buying property over £2 million in their own name and 15 per cent for companies.

"The deterrent to investment created by the new legislation, coupled with uncertainty of what will be revealed in December following the government consultation period, means investors have adopted a ‘wait and see’ attitude," the firm said. "Greater London as a whole reflects the pulse of the domestic economy and the consequence of a fall in transactions between £2 million and £5 million of over 50 per cent is very concerning."

Moreover, while the government’s proposed property taxes may be a "vote winner", making London less attractive to investors is likely to be a "short-term sop", the firm added. In a summer report, LCP stated that it would not be unrealistic to assume a 10 per cent suppression in the prime central London private rented sector as a result of the measures.

"Clearly, the tax changes have slammed the brakes on both the domestic and investment market," said Naomi Heaton, chief executive of LCP. "Given the evident impact of the changes in what is traditionally a buoyant quarter and the continuing uncertainty while investors await clarifications, the full effects may not be felt until after the consultation outcome is announced in the [Chancellor's] Autumn Statement."