Potential Tax Changes Are Top Deterrent To Wealthy Foreigners Buying In London

Eliane Chavagnon and Tara Loader Wilkinson, 8 October 2012


Eighty-eight per cent of wealth advisors surveyed by Knight Frank cited the
changing tax environment as the strongest deterrent to buying super-prime property in the

New York is perceived as its
biggest competitor, the real estate firm found in its Super-Prime London Report 2012 report. The new report underlines the fact that the prime London real estate market's soaring recovery is more fragile than it looks. 

Since 1976 gold prices have risen 802 per cent and central London
house prices have climbed 2,685 per cent - geopolitical and security concerns in other countries are the biggest
drivers for those considering buying or renting in super-prime London.

"But over the past decade the
price of a typical super-prime residential property in London had
plunged in gold terms," the report said. "In 2002 it would have taken
you 24,000 ounces of gold to buy a super-prime mansion in SW1. A decade
on, you would get change from 9,800 ounces."

In terms of prime rents, weaker employment prospects in the City have
pushed down prices across the board in London over recent months. The
report found that in the £6,000-plus/week market, the falls have been
limited to -1.3 per cent, compared to -1.7 per cent in the wider prime
market. "Anecdotally, the super-prime rental sector is slightly more
protected from short-term employment market weakness, due to the greater
preponderance of entrepreneurs and senior management," it said.

Overall, Knight Frank forecasts zero per cent growth in the super prime market in 2013, but with a return to positive growth in 2014.

Nevertheless, London’s
super-prime residential market has weathered the global financial
storms of the past year, with 2011 turning out a record year for the £10
million-plus (US$16 million) market and the first half of 2012
pointing to a continued solid performance, new research from Knight Frank shows.

Overall, prices in the £10 million-plus market rose 9.4 per cent in
the 12 months to August 2012, while the rate of growth has slowed from 3
per cent in the three months to May 2012 to 1.8 per cent in the
subsequent three months to August, the real estate firm found.

The findings illustrate how London is still able to attract foreign
wealth through lifestyle, security, stability and educational factors:
"There is plenty of money around and much of it is targeted at the top
of the London market," it said.

But the performance of the prime and super-prime London property
market has attracted the attention of politicians in the UK, as
uncertainty around legislative - especially tax - changes is a key
concern for potential investors at the top end of the market, the firm

"It appears that the new top rate of stamp duty for individuals at 7
per cent has not undermined the market significantly. Sales are down in
the £2 million to £5 million bracket but above that level the market has
been relatively resilient. The problem pressing on the market is the
uncertainty as to whether politicians have done their worst yet."

The report found that over the past two years 67 per cent of buyers
in the super-prime market have come from overseas. London, it said, has
the most diverse range of nationalities buying in any key global city.



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