London's luxury property market is crumbling - Terrible news for affordable housing

worldtraveller

The latest set of evidence shows that the luxury market is crumbling and this is really bad news for affordable housing in London.

If luxury properties don't tempt the rich then those in a lower band will, pricing out prospective buyers with less money.

Houses in the most sought after areas in London — such as Belgravia, Kensington, and Knightsbridge — are selling at a huge discount, according to LonRes data cited by the Financial Times.

For example, 59% of sales in Knightsbridge and Belgravia were selling at a discount of at least 10%. Meanwhile over half the properties on sale in Mayfair and Marylebone had similar discounts applied.

LonRes data from the FT also showed that houses on the market for £5 million or more were hit by an 11.1% discount on average. Stamp duty is probably the biggest issue right now for wealthy property owners.

Business Insider

Out,_Vile_Jelly

worldtraveller wrote: »

T

If luxury properties don't tempt the rich then those in a lower band will, pricing out prospective buyers with less money.

The "luxury" (a horribly overused word) London flat market is an entirely different beast to the regular everyday market. These places aren't bought to live in, but for foreign oligarchs to park money safely. These people aren't interested in outbidding families for two-up, two-down terraces in Tooting.

Generali

My guess is that the strengthening of the Chinese capital controls (i.e. actually imposing the rules) is the primary cause with the secondary being the collapse in commodity markets.

michaels

No doubt Panama also hasn't helped.

Question is, is it an entirely separate market that has no bearing on the rest of the UK or was it the driver of the whole house price engine that is currently rippling out of London with burbs and commuter towns seeing crazy year on year increases and that a slowing /stagnation / falls at the top will also (with a lag) ripple out?

Electrum

Its all falling, both starter homes and luxury homes in London are falling.

Jonbvn

Well it was unlikely to keeping rising at 10%+ per annum forever was it?

westernpromise

The problem with £5 million properties is that the stamp duty on one is £513,000. If you buy five £1 million properties instead, you'll only pay £44k on the first one and £74k on the other four. So you'll save £180k.

If you buy ten £0.5 million properties you'll pay £285k, a saving of £230k in tax.

The more properties you buy, the more money you save.

Better yet, if you buy one flat, you can either live in it or let it out. If you buy five, you can live in one and let out four. If you have 10 you can live in one and let out nine. If you buy 20 you can let out 19.

Why would anyone who wants £5 million of London property buy just one property any more?

The situation with stamp duty in the south east is now getting very seriously out of hand. It has gone beyond progressive to punitive, and it creates deeply perverse incentives. A landlord with £5 million to spend is going to make more money out of buying up 20 FTB homes than one high-end flat.

EDIT: in fact it's sometimes even worse than the above. If the £5 million property is a second property, then the stamp duty is £653k. Buying 20 FTB properties for £250k each instead will cost you £200k in stamp duty rather than £653k, which means that two of them are just about free.

cells

westernpromise wrote: »

The problem with £5 million properties is that the stamp duty on one is £513,000. If you buy five £1 million properties instead, you'll only pay £44k on the first one and £74k on the other four. So you'll save £180k.

If you buy ten £0.5 million properties you'll pay £285k, a saving of £230k in tax.

The more properties you buy, the more money you save.

Better yet, if you buy one flat, you can either live in it or let it out. If you buy five, you can live in one and let out four. If you have 10 you can live in one and let out nine. If you buy 20 you can let out 19.

Why would anyone who wants £5 million of London property buy just one property any more?

The situation with stamp duty in the south east is now getting very seriously out of hand. It has gone beyond progressive to punitive, and it creates deeply perverse incentives. A landlord with £5 million to spend is going to make more money out of buying up 20 FTB homes than one high-end flat.

EDIT: in fact it's sometimes even worse than the above. If the £5 million property is a second property, then the stamp duty is £653k. Buying 20 FTB properties for £250k each instead will cost you £200k in stamp duty rather than £653k, which means that two of them are just about free.

I think in the past and maybe true today but less so due to the stamp duty, people used to overbuy main residents as they were tax efficient.

If I had £5 million then buying a £5 million main residence seemed a good idea as the gains were tax free and imputed rent is not taxed. The same £5m in something else would have seen 45% income tax on it plus 28% CGT

Now to buy the £5m house needs you to folk out £665,000 in stamp duty it nullifies a lot of the tax advantages of having a expensive house.

mystic_trev

worldtraveller wrote: »

The latest set of evidence shows that the luxury market is crumbling and this is really bad news for affordable housing in London.

What effect will this have on Wood Green?

Generali

This is a luxury property apparently:

http://www.rightmove.co.uk/new-homes-for-sale/property-37851669.html/svr/2714;jsessionid=432A9EB50C869BC1DA25C3D48FB4853B?premiumA=true

Eight hundred and fifty thousand squids for a grey house with tiny windows. At least you can buy drugs conveniently, that's a plus. You'd need the drugs to get you out the door in the morning.

michaels

Generali wrote: »

This is a luxury property apparently:

http://www.rightmove.co.uk/new-homes-for-sale/property-37851669.html/svr/2714;jsessionid=432A9EB50C869BC1DA25C3D48FB4853B?premiumA=true

Eight hundred and fifty thousand squids for a grey house with tiny windows. At least you can buy drugs conveniently, that's a plus. You'd need the drugs to get you out the door in the morning.

No wonder they need all those fences what with it being in the borders....