LONDON - The love affair between the global super-rich and London property is souring as UK politicians tap into a mood of public resentment of the wealthy, with tax increases and rhetoric playing up their own humble origins.
Prices of homes costing more than 10 million pounds ($16
million) have risen 56 percent since 2007 as overseas investors
park money in the relative safety of London bricks and mortar,
with foreign buyers accounting for about a two thirds of deals,
a report by property consultant Knight Frank shows.
Prices in top neighbourhoods, such as Mayfair and
Kensington, will be flat next year after a slowdown that began
in March with a coalition government budget that included a
proposed “mansion tax”, Knight Frank said on Friday.
Alex Michelin, founding partner of luxury developer
Finchatton, said: “A 3.5 million pound house in Chelsea was put
on sale in March, but interest cooled rapidly after the budget.
It was like the buyers disappeared into quicksand.”
Last month’s sale of a property called Gordon House to
developers the Candy Brothers was a key test of appetite because
of the high asking price of 75 million pounds. It was bought for
closer to 65 million, three sources told Reuters.
Personal wealth is a divisive issue in British politics,
with Conservative Prime Minister David Cameron frequently under
attack for his privileged upbringing, while many in the country
suffer under austerity measures. Cameron is the latest in a long
line of British prime ministers to have attended Eton, one of
the UK’s top fee-paying schools.
Ed Miliband, leader of the opposition Labour Party, featured
in a political broadcast on Tuesday that emphasised his
state-school background, despite subsequent reports that his
Primrose Hill home is worth 1.6 million pounds.
Last year’s opening of the luxury One Hyde Park development
n ear Harrods department store, with accompanying tales of stamp
duty avoidance and opulent second homes sitting empty, helped to
spark the government scrutiny, two sources told Reuters.
The March budget introduced a 15 percent rate of stamp duty
for purchases of more than 2 million pounds through a company –
a method commonly used by wealthy buyers to avoid paying stamp
duty and remain anonymous.
It also launched a consultation process on plans to levy an
annual charge on properties worth more than 2 million pounds and
extend capital gains tax to include overseas individuals who buy
property through companies. The government hopes to impose the
charge from April next year.
The consultation period ends on Tuesday, but uncertainty has
put a brake on the market, particularly for homes costing
between 2 million pounds and 5 million pounds. Buyers of
properties in this range tend to be less able to pay the extra
taxes, Knight Frank said.
Opponents of the tax increases say that the influx of the
super-rich, many of whom come from Russia, Eastern Europe and
the Middle East, benefits the economy because they spend money
in local businesses.
“For Nick Clegg (Lib Dem leader and deputy prime minister)
to stamp on successful people buying property in London is a
short-sighted mistake,” said Michelin, who will expand into New
York and the south of France because of the uncertainty.
Many buyers are sitting on the fence until the picture
clears, said Damian Bloom, a London-based partner at law firm
Berwin Leighton Paisner, who specialises in the tax affairs of
the super wealthy.
“George Osborne (the Chancellor of the Exchequer) would have
to make an awful lot of speeches about how wonderful London is
to counteract the fact that when clients pick up the phone to
say ‘I want to buy a house’, the first thing they do is hit a
whole load of problems,” Bloom said.
A slowdown in the market, however, would be welcomed by
those who argue that the chasm in living standards is morally
repugnant and exacerbates a housing shortage in London.
The Smith Institute, a left-leaning think tank, found in
July that “many areas of inner London have become prohibitively
expensive for local residents and too many luxury flats remain
empty and treated as lucrative investments”.
Much of London’s continuing appeal lies in the fact that
wealthy foreigners are not taxed on their overseas wealth if
they are not domiciled in the UK, though recent policies impose
a levy of up to 50,000 pounds on longer-term residents.
Buyers are also still attracted to London because it is
outside the euro zone and alternatives such as France have
become even more unwelcoming to the rich after the election of
left-wing Prime Minister Francois Hollande.
The London slowdown could be temporary as buyers wait for
the outcome of the consultation and seek loopholes in the new
laws, said Sophie Dworetzsky, a partner at law firm Withers.
“What might be happening is everyone’s taking a bit of a
break while they figure out what they can do in terms of
(ownership) structures. It might just be a lull before it kicks