London-based partner, David Willis discusses why London’s prime property market is under no real threat in PrimeResi on Thursday 14th January.
The tide is turning for London’s luxury housing market, with foreign investors from new markets snapping up prime properties while more traditional investors are turning their attention elsewhere.
Individuals making a wealthy living in their home country, such as entrepreneurs in Iran, are joining the likes of Saudi and Qatari buyers in becoming key players in the UK luxury marketplace. However an increasingly punitive UK tax regime on wealthy property owners is causing traditional investors coming from the Middle East to think again.
For many non-domiciles, recent research shows that a combination of disadvantageous currency movements along with UK tax increases are major factors in London currently being perceived as a less attractive place to buy on a wider scale. 18 months ago, properties in London’s wealthiest areas such as Mayfair would have prompted a bidding war once on the market, but are being sold at ‘discounted’ prices.
There is no denying that the London luxury market is plateauing; the first half of 2015 saw an 11% drop in the sale of homes in the UK that are worth more than £1 million with a further slump in sales for homes priced between £3 – 16 million.
This can be explained by the government’s attempts to help regulate the London housing market, which include the chancellor’s attacks on second-home buying and private investors as well as his overhaul of the out-dated stamp duty system. For some, these initiatives have put a question mark over London’s reputation as one of the world’s top property hotspots.
With a 3% increase on stamp duty for second home buyers, very low inflation and the mortgage market review, London’s £1 million-plus housing market may be slowing down in the short term, however the fundamentals of wealth generation and demand will ensure the city’s reputation as a luxury housing market hotspot is kept intact down the line. These strengths are being seen elsewhere now: Chinese buyers are expected to invest in London following recently reduced constraints on gaining UK visas for buying properties; newly-found billionaires from India continue to buy prime London property; and the strengthened dollar in the US is giving buyers more spending power.
Bearing in mind the current global economy, with much uncertainty in emerging markets, these trend makes sense. While London’s luxury housing market is plateauing in the short term as it gets used to recent government shake-ups, traditional investors will most likely come back due to the ultimate confidence that exists in the luxury London housing market. Combine this with recent interest from new markets, demand still outstrips supply in the luxury London marketplace, so it is safe to say that the UK capital is under no real threat.