Billionaires are shunning the London luxury property market, with sales of “super prime” £10m-plus homes in the capital collapsing by 86% over the past year.
Just five properties were sold for more than £10m in the three months to August 2016, according to an analysis of Land Registry data, compared with 35 in the same period a year earlier. Outside of London, not a single property was sold for more than £10m, compared with ten last year.
The average price paid also fell steeply, from £22m to £16.3m, said property group London Central Portfolio, which carried out the analysis.
It blamed increasing property taxes, such as the sharp hike in stamp duty and new obligations on non-dom foreign buyers, rather than Brexit, for the decline in prices and activity.
Worried developers are now scaling down the most opulent projects, with one newbuild Mayfair block reworked to provide more, smaller, flats in a bid to find buyers.
Newbuild sales have slumped in particular, said LCP, which runs investment funds of high-end central London apartments. No super-prime newbuild units were sold over the three-month period, compared with last year where they made up 23% of sales.
Naomi Heaton of LCP said: “A price correction was inevitable and is widely reflected in reports of price discounting. Whilst the long term outlook remains compelling, the luxury market is likely to experience continued instability especially in the face of the forthcoming ‘look through’ non-dom inheritance tax … it may take some years before growth returns.”
Many will cheer any downturn in the London property market after years in which price rises have far outstripped local incomes, even of the well-off. Separate research by estate agents Jackson-Stops & Staff has found that homes for sale at less than £100,000 are now extinct in the capital, and suggests that this year homes under £120,000 will completely vanish.
But Heaton said the slowdown in the luxury property market should be “very concerning” for the Treasury as it would lead to a decline in stamp duty receipts. She estimated that the reduction in super-prime activity in the last three months alone meant the government could face a £45m fall in stamp duty receipts. The government’s haul from stamp duty, particularly in London, has soared over the past year, but Heaton said that may now hit the buffers.
The sudden disappearance of super-rich buyers is forcing developers to reconsider their plans. “Many are looking to divide large, high-priced property into smaller flats to increase their attractiveness. Clivedale, for example, is reworking its flagship Hanover Square development to create four times more units, whilst the green light has been given to Citygrove Securities and McClaren Properties to replace seven Chelsea townhouses with smaller units,” said LCP.
Rents are also falling, partly as sellers unable to find buyers choose to rent out their properties instead. Separate data from upmarket property agents Knight Frank found that rents in prime central London locations fell by 4.7% in the year to September, although the number of tenancies agreed reached a record high. But it said the sales market had not fallen as steeply as the LCP figures suggest. It found that price falls were 2.1% in the year to September, noting that the amount of time it took for a property to sell was 14% higher than at the start of the year.
Sterling’s 20% devaluation since the EU referendum may bring foreign buyers back into the luxury London market. According to Juwai, which claims to be the biggest international property website for Chinese investors, inquiries were up 12% in August to a record high as the yuan-rich scout around for bargain buys in London.
“Ironically, the rapid devaluation of sterling, now attracting foreign investors back to London, may be the biggest hope of salvaging a potentially embarrassing and costly situation,” said Heaton.
But the chances of normal people picking up a bargain is remote. The single most expensive residential property sold in the UK during the past three months still went for £25m despite the slowdown – and even then it was a “fixer-upper” requiring total renovation.
The six-storey house, 112 Eaton Square, went for just £1.5m less than its £26.5m asking price. The property, famous as the location where a group of rebel Tory MPs plotted to topple wartime prime minister Neville Chamberlain, has been empty for 20 years and the buyer will have spend millions on a restoration.
The top five highest-priced UK home sales June-August 2016
- £25m for a terraced house: 112 Eaton Square, City of Westminster, SW1
- £16.9m for a terraced house: 6 Grosvenor Gardens, City of Westminster, SW1W
- £16m for a flat: 79 Grosvenor Street, City of Westminster, W1
- £13m for a semi-detached house: 11 Chelsea Square, Kensington and Chelsea, SW3
- £10.2m for a terraced house: 32 Thurloe Square, Kensington and Chelsea, SW7
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