Price gains in London’s luxury-home market will almost halve in 2014 as buyers avoid neighborhoods such as Chelsea and Knightsbridge, which fueled a five-year boom, Knight Frank LLP said. A plan to tax overseas buyers’ capital gains may also dent demand.
Prices of houses and apartments in the U.K. capital’s most expensive neighborhoods will climb 4 percent in next year after a 7.5 percent jump this year, according to the London-based broker. Prices in Chelsea, Mayfair and Knightsbridge in 2013 underperformed the rest of London’s best areas for the first time in a decade.
“There are limits to pricing growth in London,” Liam Bailey, Knight Frank’s global head of research, said by phone. “Central London prices have recovered from the crash and there is resistance from buyers.”
Overseas buyers helped London’s luxury homes outperform other U.K. real estate for the last four years as investors sought safe assets. An investor-friendly tax system and the pound’s depreciation after the financial crisis sparked a 62 percent surge in prime London prices since a low point in March 2009. Prices have exceeded the previous peak in 2008 by 26 percent, according to Knight Frank.
A capital-gains tax on home sales by people living abroad may dim the capital city’s allure to property buyers from abroad, Bailey said.
“A few buyers have had second thoughts about London, particularly if they were thinking of being based outside the U.K.,” he said.
Chancellor of the Exchequer George Osborne announced the tax on Dec. 5. It will apply to “future gains” after the tax takes effect in April 2015, he said, without specifying the levy’s size. Capital-gains tax rates for second homes of U.K. residents currently range from 18 percent to 28 percent.
London luxury-home prices climbed 0.8 percent in December from the previous month, the most since March, according to the report. Prices in the City of London financial district and its fringes rose the most this year, gaining 16 percent. Prices in Marylebone and Islington climbed 12 percent.
Rents for prime London homes have either fallen or been little changed for the past 20 months. In December, they dropped 2.3 percent on an annual basis, the smallest decline since September 2012. Rents for properties in and around the City of London were little changed as banks step up hiring.
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