Knight Frank: Prime central London property prices have increased 8.4% in past 12 months

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With the countdown to the 2013 Budget underway, Liam Bailey, Global Head of Knight Frank Residential Research, looks at the impact last year’s increase in Stamp Duty has had on the property market.

Knight Frank

Knight Frank

By the end of March, HMRC will have collected some £223m in additional tax revenue.

Last year’s stamp duty increase has reduced annual prime central London sales volumes by 15%, by the end of March, HMRC will have collected some £223m in additional tax revenue

With the countdown to the 2013 Budget underway, Liam Bailey, Global Head of Knight Frank Residential Research, looks at the impact last year’s increase in Stamp Duty has had on the market.

For the prime central London market, the most important policy to come out of the 2012 Budget was the increase in stamp duty for residential transactions over £2m. The Chancellor’s introduction of a new 7% SDLT rate for the purchase of residential properties over £2m came into effect immediately.

Using transactions data and our own market knowledge, we have calculated the impact that the new rates have had, and we have estimated the likely impact on Stamp Duty receipts for the full tax year 2012-13.

At the time of the 2012 Budget, HMRC forecast that the increased levy would help net an additional £150m.

During the six months following last year’s budget the impact was dramatic; the volume of £2m+ sales fell by between 25% and 35% across London.

The market has since reacted more positively following the publication of the draft 2013 Finance Bill in December, which provided some clarity around the wider £2m+ residential property tax environment.

Knight Frank estimate that transactions in the £2m+ residential property sector will be around 15% lower in the 12 months to the end of March 2013, compared to the same period a year earlier. Based on published HMRC data this would point to a total of 3,400 transactions as opposed to 4,000.

At the lower end of the prime market, meanwhile, sales of £1-2m homes are likely to have increased by around 5% over the same period.

Taking this into account, Knight Frank have calculated that by the end of March, HMRC will have collected some £223m in additional tax revenue since the 40% rise in stamp duty was implemented in 2012, £73m more than originally forecast.

While the announcement in the Autumn Statement that the Chancellor planned to introduce “no new property taxes”, combined with the clarity provided by the draft Finance Bill encouraged potential purchasers to return to the market at the latter end of the year, we believe the longer term impact of the stamp duty increase has been to reduce total £2m+ sales by around 10% below the level they would otherwise be if the new Stamp Duty rates had not been introduced.

In February, the average price of prime central London property increased at its highest rate in 10 months, climbing 0.9%. Prices have been rising every month since November 2010 and now stand 55% above the March 2009 market low.

As was the case for much of 2012, the lower end of the market continues to be the strongest performer. Prices in the £1m-£2.5m bracket increased by 1.7% on a monthly basis in February and have risen by 2.1% in the last three months. Conversely, the £10m+ market has been more sedate with a 0.1% increase in prices in February and a 1.6% rise in the past three months.

As we highlighted last month, the fall in the value of sterling has increased the appetite for prime central London homes among overseas buyers. Figures from Knight Frank’s Global Property Search website confirm this, with a 16% monthly rise in euro-denominated buyers looking at prime central London property in January.

In France and Italy, where concerns over the introduction of wealth taxes and political uncertainty form the wider economic backdrop, searches increased by 33% and 36% respectively over the course of the month. Further afield, searches from Chinese and the US also climbed by 35% and 53% respectively.

For further information, please contact:

Liam Bailey, head of Residential Research, Knight Frank, +44 (0)7919 303 148, liam.bailey(at)knightfrank(dot)com
Daisy Ziegler, London PR manager, Knight Frank, +44 (0)20 7861 1031, daisy.ziegler(dot)knightfrank(dot)com

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Notes to Editors

Knight Frank LLP is the leading independent global property consultancy. Headquartered in London, Knight Frank and its New York-based global partner, Newmark Knight Frank, operate from 242 offices, in 43 countries, across six continents. More than 7,067 professionals handle in excess of US$817 billion (£498 billion) worth of commercial, agricultural and residential real estate annually, advising clients ranging from individual owners and buyers to major developers, investors and corporate tenants. For further information about the Company, please visit http://www.knightfrank.com.

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