London Luxury Property Market at Risk as Wealthy Shun the U.K.

01 March 2017

London Luxury Property Market at Risk as Wealthy Shun the U.K.

Fewer investor visas granted

The number of wealthy people granted investor visas to live in the U.K. fell by more than 80 percent last year from the peak in 2014. While so-called Tier 1 investor visas rose 12 percent in 2016, the total granted was just 215, according to government data published recently.

London’s luxury housing market has been beset by the Governments changes in the tax laws, fears of oversupply and political uncertainty following Brexit.

Overseas demand dampened

With 35,000 high-end properties planned for the city some developers hoped that the 16 percent fall in the pound since the referendum would help stabilize values in the capital’s best districts, which have fallen by 12.5 percent from their peak.

Savills have reported that: “Weaker demand from Tier 1 Investors, uncertainty due to the vote to leave the EU, and stamp duty changes all mean the central London residential market continues to struggle,”

Applications for the investor visas have slumped since the government doubled the minimum investment required for the Tier 1 permit to 2 million pounds and introduced new money laundering due diligence checks. 

According to Hamptons International: “Higher stamp duty land taxes and the Brexit vote have dampened demand from overseas, with the percentage of homes in central London’s best districts being acquired by international buyers falling to 41 percent in the three months through December from 60 percent in the previous quarter.”

Sales tax increases

Successive increases in sales taxes are seen as the main cause of falling home values in London’s most expensive areas, broker Knight Frank said earlier this month. The government brought in a 3 percent levy on second-home purchasers and landlords in April 2016, having earlier increased charges for all luxury-home buyers in December 2014. 

Whilst a weak pound has compensated for higher taxes and increased the appetite for residential investment, it does not appear to be enough to convince overseas investors to buy. Home sales in London’s most expensive postcodes were 11 percent lower in the fourth quarter of 2016 compared with a year earlier, and it may be that the weaker pound is also causing owners to avoid offering homes for sale, thus damping sales volumes.

Further changes to come

The further changes to the tax rules relating to Resident but non-domiciled individuals and the taxation of properties held through overseas companies which comes into effect in April 2017 with undoubtedly have a further impact on the UK residential property market.  It has been observed by a number of professionals that in their opinion the UK Government is blind to the damage that these further and on-going changes to the tax laws will cause to the UK economy resulting in an outflow of capital as a result of the uncertainty created.  Investors are looking for stability and certainty, traditionally the UK offered this, but it seems no longer to be the case!

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