Stamp duty change is more of an issue for the prime central London sales market than the UK leaving the European Union, new research suggests.
However, the vote to leave the EU has created a backdrop of short term uncertainty that is affecting behaviour in the prime central London property market.
As a result prices are now down 1.5% compared to a year ago and the number of new prospective buyers has fallen by 6.2% over the same period, according to the latest index from real estate firm Knight Frank.
The index report also shows that the number of exchanges, including new build properties, fell by 10.5% in the first half of 2016 but the number of viewings was 40.8% higher than in 2015.
However, the sub-£1 million market registered a relatively stronger performance, with annual price growth of 1.1%.
According to Tom Bill, head of London residential research, early indications suggest the Brexit vote is reinforcing existing pricing trends and viewing the referendum in the context of the preceding two-year period is helpful.
In June 2014, annual growth in prime central London was 8.1%, the last peak before a period that saw growth fall steadily to -1.5% in July 2016. ‘This slowdown was a natural consequence of strong price rises between 2009 and 2013, however the process was accelerated by two stamp duty increases and a series of other tax measures,’ said Bill.
‘Despite the widespread media coverage devoted to the EU referendum and its potential impact on house prices, the primary factor curbing demand in prime central London remains stamp duty. The result of this two year slowdown is that vendors had already begun to adapt to the new pricing environment and in many cases Brexit has been a trigger to make overdue reductions to asking prices,’ he explained.
‘Indeed, had the result of the referendum been a victory for Remain, it is likely there would have been a similar mismatch between expectations and reality that followed the 2015 general election. Following the formation of a majority Conservative Party government, high stamp duty costs acted as a brake on demand that was widely expected to surge. Since the vote, a number of buyers have requested discounts due to the climate of political and economic uncertainty,’ he pointed out.
‘However, where the asking price was set at an appropriate level before the vote, deals are proceeding with no reductions. In other cases, the Brexit vote has encouraged vendors to show increased flexibility. It is too early to say whether the reductions are likely to trigger higher transaction levels,’ he added.
Bill also pointed out that there is no uniform picture across London and the situation is compounded by thin trading during seasonal summer lull. However, it is possible to see the benefit of recent downward repricing in some markets.
In Belgravia overly ambitious vendor expectations, which had led to weak trading over the past two years, has been replaced by a more realistic approach from sellers. Combined with an effective 10% discount that US dollar denominated and dollar pegged buyers have compared to before the EU vote, the result has been a pick-up in activity over the last month.
Similarly, in Knightsbridge, the market which has seen the largest price declines in prime central London over the last 12 months, activity has been relatively strong since 23 June, with no discounts on appropriately priced properties.
Across prime central London while the number of new prospective buyers was down slightly in the first two quarters of 2016, compared to the same period in 2015, strong viewing volumes give some confidence regarding future sales volumes, which are currently down by around 15% year on year.
Bill added that the referendum has also brought pre-existing dynamics into sharper relief in the new build market. ‘Price sensitive buyers have been increasingly driven by the quality of developments and amenities over a desire to buy in a specific London neighbourhood,’ he said.
‘Though transactions have declined in recent months towards levels that are more in line with historical norms, they have been more resilient at appropriately priced schemes with high quality amenities,’ he concluded.