Is London Losing Charm Because Of Stamp Duty?

London has been the beloved place for property investment from ages. People do not hesitate in paying a hefty price with an anticipation of a phenomenal increase in the wealth after a few years. There are high-profile properties with ultra-fine architecture, beautiful ambiance, and unmatched quality with exorbitant price tags. Some time back, people didn’t mind spending heavy money for such high-end properties. However, it seems that the charm is decreasing rapidly, and property agents and dealers are required to put extraordinary efforts into finding out potential buyers.

It is said that the recent budgetary change has created a major havoc in the real estate market, and the worst sufferers are HNW (High Net Worth) buyers who have deep pockets and great interest in extraordinary properties. Not only fresh investors, but second-home buyers also find the market pessimistic. According to some experts, the turmoil is one of the worst in last fifty years and the status of London is no longer remains the “hotspot for property investment”.

Decline and fall!

It is almost one year after George Osborne introduced the new stamp duty proposals in England, Northern Ireland, and Wales. Though it was told that the new proposals are for lowering burden on the pockets of buyers, people feel that it has actually increased transaction levies on properties that worth more than 1.5 Million. As a result, a significant drop has been observed in the sales of high net worth properties. Experts say that certainly the numbers of transactions that take place in this segment are quite low; they drive the market because of the huge money involved.  A few transactions worth millions of Pounds are worth than hundreds of small value transactions. It is the reason; real estate market saw a big bump during the whole year.

The impact was quite visible in the city because it is the place where the costliest of transactions take place. Statistics reveals that the situation is quite pessimistic, and there is a drop of 10 percent in the sale of properties that worth more than a million pounds. The drop is further significant if we look at the figures for higher segments. Properties worth more than 2 Million showed 25 percent drop and properties worth more than 5 Million showed as high as 40 percent drop. The statistics are alarming from any perspective and require immediate correction.

Is the change in the stamp duty the only reason?

Not really, as far as economy experts opinion is concerned. However, it is a driving force certainly. According to economic analysis, it is a resultant factor of several things like volatility in the real estate market; highly inflated prices and economic instability post-election are the other significant contributors. Global economic slowdown and tendency of saving money are also responsible for the setback.

Since there is a plunge in the number of foreign investors, that means global aspects also responsible for it. Apart from local investors, people from other European countries were reluctant in buying high net worth properties.

Property prices increased, in spite of drop in sales

It is quite strange that the prices increased in spite of the economic slowdown across the length and breadth of the UK.  Though the sales figures came down regularly last 10 months and supply of properties outpaced the demand, surprisingly it didn’t decrease property prices.  Every month, new and new homes entered the arena with high price tags.

As per experts, there is nothing unusual in it. Since property owners and real estate dealers know that the demand is far less than the supply, they want to grab every opportunity of sales. It results in an unrealistic inflation of prices. Not only newly constructed, but resale properties also show the same trend.

Moreover, policies in the country also add their contribution to it. The government has taken several steps to driving the force, but the boost to market demand also brings an increase in the rates. The phenomenon is quite strange but true.

What do real estate agents think?

Estate agents say that there are two reasons for the drop in the sales. Firstly, there is a lack of enthusiasm for new properties, especially for luxury homes.  Since the market seems to be volatile and quite pessimistic, there are feeble chances that one would earn huge profits by selling a house, villa or apartment at an exorbitant price in the coming years. Quite obviously, people want to put their money in safe options like bank deposit or long-term mutual fund investment.

Secondly, the market is quite sensitive to environmental changes. Stamp duty affects the market sentiments negatively. Though the stamp duty change is more relevant to higher segment (more than 1 Million), it adversely impacts the overall market.

They feel that prices of higher segment properties should be reduced to boost the interest of people in the real estate market.

Conclusion

Statistics and reports say that people are sitting tight and not investing at all, particularly in high-value homes. They don’t foresee any improvement in the situation and it is the reason they want to keep their money in safe hands. From all parameters, it is not a healthy situation for the economy. Though many people blame the stamp duty modifications, there are other aspects as well. The economy is in a slump, and high-value homes are not expected to give attractive returns.

There are deep implications on the UK property market because of these factors. Not only people will have to pay higher taxes because they will not be able to avail exemptions on real estate investment, but it will hamper the growth prospects also. Real estate agents, interior decorators, architects, solicitors and everybody associated with the market will be the suferer.

Thus, it is a big thing from the economic growth perspective of the UK. Experts feel that there has to be a quick improvement in the situation so that everything becomes normal. The country should become a safe haven for property investors as fast as possible. Policies that are felt erratic and inconsistent should be corrected quickly.

About

Having served 16 years in the army Colin re-educated during the early 1990’s including two years at the Camborne School of Mines reading Mineral Surveying and Resource Management achieving a first class Diploma (Dip CSM). This allowed direct entry to the second year at The University of the West of England, Bristol reading Valuation and Estate Management. Training and experience was gained with Exeter City Council Estates Department and Sheperds Chartered Surveyors qualifying as a Member of the Royal Institution of Chartered Surveyors in June 2003. Colin set-up the company in May 2009 and covers the complete range of services.

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