With new reports indicating that Stamp Duty is causing problems at the higher end of the London residential property market, Simon Morris asks how stamp duty has impacted London property development.
Introducing Stamp Duty
Buyers are now required to pay a minimum rate of 2% in Stamp Duty Land Tax when they buy a residential property that’s worth more than £125,000. Many investment experts have expressed concern that this would hit the strongest residential property market in the UK: London. But London’s house prices have continued to grow since the introduction of the new Stamp Duty rules. The Evening Standard reported that the average London house price hit £525,000 in July 2015, despite Stamp Duty.
Effect on London housing
Yet a new report from the same publication indicated that home owners are struggling to sell their properties due to the introduction of new Stamp Duty rules. They revealed that the owner of the most expensive property on the open market in the UK capital has now offered to pay £9 million to help sell it.
This is because the property, which lies in the extremely upmarket One Hyde Park development in Knightsbridge, now has a Stamp Duty bill of £8.9 million. The property, described as “one of London’s most spectacular apartments in the world’s most exclusive residential development” by agent Savills, would have had a Stamp Duty bill of £5.4 million under the old rules.
Stopping “like to buys.”
Yet the problem isn’t restricted to the very top tier of the London property market. New figures from the Land Registry indicate that sales of London homes worth over £1 million have fallen 26% since last year, whilst sales of London homes worth over £2 million have dropped 38% within the same period.
Trevor Abrahmsohn, from north London agent Glentree Estates, commented on the issue: “The ‘have to buys’ will always buy, but the changes have stopped the ‘like to buys’. It has slowed down the market and the Government will make less money as a result. Stamp duty is not mortgageable and it buys you nothing. To buyers it is a financial burden and also a psychological hurdle.”
Weigh up options
In other words Stamp Duty may is hitting the UK capital’s property sector exactly where it’s supposed to; its luxury end. With this insight, Simon Morris would really advise investors to fully consider the implications of Stamp Duty before investing in high-end London property development.