Impact on the property market

I have to admit, the 2% stamp duty increase took the property market by surprise.

It had been leaked to the FT that morning but no-one thought it would take effect immediately, so we were straight on the phone to our buyers for property over the new threshold and plans for Wednesday afternoon were scrapped as we assisted affected Clients to exchange before the midnight deadline, saving all concerned hundreds of thousands of pounds.

The key changes affecting the property market were as follows:

• Stamp duty increased by 2% for properties over £2million to 7% from midnight

• Stamp duty on property owned by a non-resident entity increased to 15% with immediate effect

• Government to bring in new general rules to clamp down on tax avoidance as part of the 2013 Finance Bill plus a warning that this is likely to include retrospective measures

Prime Property

In the longer term, Manse & Garret Property Search are not forecasting significant change to prime property sales in prime central London. Clearly the £2 – £2.25m price bracket will feel some aftershock for a few months, but given the lack of supply and increasing demand for stock in the best areas, we don’t think the increase in stamp duty will have a marked effect.

However affected property just outside the centre is likely to take a hit. Popular areas from Richmond, Chiswick and Fulham to the West, Islington, West Hampstead and Muswell Hill to the North and Greenwich and Blackheath to the East are likely to suffer few sales between £2m and £2.25m in the months to come. Motivated vendors are likely to take a hit on price but many will stick to their guns and hold out for the extra hundred thousand and these sales will stick.

Although about 80% of the prime central London market is dominated by overseas investors and many people buy using a corporate structure, in the grand scheme of things, given the capital gains which are routinely made in prime central London, we don’t see the new rules making a difference to price. After all, the best apartments on the best roads from Knightsbridge, Belgravia and Mayfair to Chelsea and Notting Hill are appreciating at circa 20% per year. Most investors will hold prime central London real Estate for 3 years or more so although the 7% stamp duty is an irritation, it won’t make a difference to the logical investor. Also the factors driving the prime central London property market remain, ie political instability in parts of the middle east, the rise of emerging markets who want to keep their offshore earnings offshore but in a stable political and economic situation and global economic uncertainty which favours prime central London real estate as an asset class.

The good news for buyers is that the current low stock levels are likely to be improved for the next year or so, as those looking to sell, rush to do so, mindful of the threat of retrospective legislation, when it comes in in 2013.

Super-prime property

It is the buyers of super-prime property £15m plus who will suffer most from the budget 2012 and it will be interesting to see the effect on this area of the market. There is very little to choose from in this market, few are advertised officially and those which are available are frequently priced using a multiple of their true value. Most of these houses and apartments are used as pied-a-terres and I suspect some will struggle for a few months, while the tax advisors of the super-wealthy find a scheme to mitigate tax and the prospective buyers consider whether they still want an awe-inspiring place in the UK.

The sub-£2 million property market London and Country There will inevitably be a number of investors with large portfolios of property held by offshore companies who decide to liquidate ahead of the 2013 Finance Bill. As a result we anticipate more stock coming to the market over the next year but whilst this will increase choice for buyers, we don’t think it will have a huge impact in price, although prices should hopefully stabilise this year and not make the significant gains seen during 2011.

Given the issues with very restricted supply and burgeoning demand, which are likely to continue, we definitely don’t see the measures reducing prices.