The prime central London market (PCL) has faced a barrage of assaults in recent years: the threat of mansion tax in 2013, various attempts to restrict overseas investment, raised stamp duty in December 2014, April 2016’s 3% additional home levy and most recently Brexit. Average PCL prices remain 4% below their peak in Q4 2014.
Lower prices OFF-SET stamp duty
The worst quarter for prices was immediately after the December 2014 stamp duty changes, when prices fell by 5.5% (Q1 2015). In the quarter following the Brexit vote (Q3 2016), prices fell by 2.1%. In fact, properties in the £3 million to £20 million bracket have been reduced by some 15% in price since 2015.
The difference between asking and achieved sales prices is at a historically wide margin. Indeed, the differential between asking and sales price is currently more than compensating buyers for stamp duty costs. For most of 2016 and early 2017, the price reduction has even been enough to compensate buyers for the 3% levy on second homes. Price reductions are helping make stamp duty more palatable.
More realistic prices are helping the market to move forward.
Overseas buyers securing a bigger discount
Overseas buyers have the added benefit of a weak sterling exchange rate. The prevailing value of sterling means that there is a 15% discount for US$ denominated buyers and an 11% discount for Euro buyers, if we compare pre-referendum currency rates with March 2017 levels.
Government policy often has unintended consequences – the increases in stamp duty, in part intended to dampen demand from ‘buy to leave’ investors, are having a greater impact on the domestic market than on overseas buyers, who are compensated by the currency discount.
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