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Higher stamp duty behind sharp decline in prime property sales in central London

The prime central London residential property market has experienced a sharp decline in sales volumes since the middle of 2014 mainly due to higher stamp duty rates, a new report confirms.

However, while sales have been weaker, a combination of lower asking prices and a weaker pound has begun to push demand indicators higher in this sector and uncertainty generated by Brexit has made vendors more flexible, according to Tom Bill, head of London residential research at Knight Frank.

He explained that this sentiment has helped the number of viewings, new prospective buyers and properties under offer to rise across prime central London in the three months to September 2016 compared to the same period in 2015.

He also pointed out that data for October has provided some early evidence this uptick in demand may be beginning to translate into an increase in transactions. ‘Sales volumes between £2 million to £5 million, a bracket hit relatively hard by recent stamp duty reform, were higher in October than in any month this year, with the exception of March. March’s spike in activity reflected the introduction of the additional rate of stamp duty in April,’ he added.

Bill said it would be premature, however, to suggest a recovery is underway and buyers remain exceptionally price sensitive. ‘For context, the number of £2 million to £5 million transactions between January and October this year remains a third lower than the same period in 2014. Future negotiations between the UK and the European Union also have the potential to act as a brake on demand,’ he explained.

‘But activity from our office network reflects the data we have seen over the past four weeks.
Annual price growth between £2 million and £5 million in the year to October was 2.4% compared to a decline of 1.4% between £1 million and £2 million, a price bracket where demand has remained more resilient, said Bill.

He added that overall, prices fell 2.3% in the year to October, meanings they are now at the same level as the second quarter of 2014.

In a separate report Bill suggests that as Sterling has weakened by more than 15% versus the US dollar since the EU referendum this has boosted the interest of buyers denominated in overseas currencies.

But he explained that part of the demand is opportunistic in nature, based on an erroneous belief that the decision to leave the EU has triggered sudden price declines across prime central London and this has caused some buyers to seek double digit price reductions on top of a favourable double digit currency swing, to which vendors are resistant.

He also pointed out that the decline in Sterling has not had a more marked impact because some buyers are anticipating further currency weakness, adding that commentators such as Savvas Savouri, chief economist at asset manager Toscafund, believe buyers should think longer term as it is unlikely that the pound will be as low as it is today in two years’ time.

Furthermore, Savouri believes London will remain a significant financial services centre after Brexit. ‘Nobody is suggesting there won’t be satellite offices opening in the EU but I would argue that entirely new firms will more than fill whatever space is vacated, for the most part these will arrive from far outside the EU,’ he said.

‘They will have ambitions to operate from London not as some Trojan horse to enter continental Europe, but as a secondary hub to complement their operations in their domestic markets, from Singapore and Sydney to Sao Paolo and Shanghai. They will, in short, not give a hoot about passporting rights,’ Savouri added.

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