BT : Gains in London home prices slow as owners decide to sell

Business Times - 29 Jun 2010

Gains in London home prices slow as owners decide to sell

More luxury houses and apartments on market as market recovers: Savills

(LONDON) Luxury-home prices in central London increased by the smallest amount in five quarters after a year-long recovery in values persuaded more owners to put apartments and houses on the market, Savills plc said.

The average value of a home costing more than £1 million (S$2.09 million) rose 0.6 per cent in the second quarter from the first three months of the year, according to the London-based property broker. Prices were 12 per cent higher than a year earlier, down from an annual gain of almost 17 per cent in the first quarter.

'It now seems clear we're at a tipping point' as more stock has come onto the market just as election uncertainty and planned government budget cuts hurt demand, Yolande Barnes, head of residential research at Savills, said in the statement.

Prices will fall about 4 per cent in the second half as the fragile economic recovery and higher taxes dampen appetites for homes in neighbourhoods like Mayfair, Kensington and Notting Hill, Barnes predicted. She expects values to decline one per cent in the full year, following an 8.8 per cent gain in 2009.

Luxury property values have gained every month since March last year as buyers competed for a limited number of homes for sale. Prices increased 3 per cent in first quarter and 4.3 per cent in the last three months of 2009. The second quarter increase was the smallest since an 18-month slide in prices bottomed out in March 2009.

Chancellor of the Exchequer George Osborne announced last week that from June 23 the tax rate on profits from the sale of rental properties or second homes will rise to 28 per cent from 18 per cent for UK taxpayers with total annual income exceeding £37,400.

Brokers reported a pickup in properties put on the market after a plan announced by the governing Conservative and Liberal Democrat parties implied that the capital gains tax rate would increase to as much as 50 per cent.

From April, individuals earning more than £150,000 a year are subject to a 50 per cent income tax levy. Mr Osborne also left in place the previous administration's plan to raise property transfer tax, known as stamp duty, for homes costing more than £1 million to 5 per cent in April 2011 from 4 per cent now.

The tax changes are unlikely to reduce demand for London real estate from overseas buyers, who account for half the purchases and 63 per cent of deals involving properties worth more £15 million, Savills said.

While values are 10 per cent below the peak reached in the third quarter of 2007, the pound's slide means that in dollar terms prices are down by 33 per cent, Savills said.

Properties selling for more than £5 million appreciated by 1.3 per cent from the end of March, the broker said, while homes costing in excess of £15 million gained 1.5 per cent in the quarter. -- Bloomberg

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Tipping point: More stock has come onto the market just as election uncertainty and planned government budget cuts hurt demand, said Yolande Barnes of Savills