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LONDON: The UK government’s move to increase stamp duty land tax (SDLT) rates for residential properties over £2 million (RM9.8 million) may boost the sales of cheaper luxury homes in the countryside, said real estate consultant Knight Frank LLP.
The new SDLT rate which came into effect yesterday is 7% for individuals purchasing residential properties over £2 million. Companies purchasing similar properties are slapped with a SDLT rate triple the previous rate of 5%.
Will prices for properties above £2 million fall in response to the new rates?
“There has to be an element of price adjustment, and we would expect tough negotiations around the £2 million level,” said Liam Bailey, head of Knight Frank’s residential research.
However, he added that on average prime London prices have risen by 42% since 2009, with no pause in the increase in values since the introduction of the 5% SDLT rate in April 2011. Hence, Bailey believes that the prime market, especially in London, will be able to absorb a new stamp duty rate at 7% with domestic and especially international demand for prime London property likely to remain strong.
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| A row of terraced houses is seen below an apartment block in London. A 7% stamp duty was introduced on Wednesday on sales to individuals of property worth more than £2 million |
Meanwhile, the prime country housing market could potentially benefit from the new tax rate as wealthy London buyers looking to move on to a family house might decide to move out of London if, for example, it allows them to buy a house at £1.9 million in the country rather than a similarly sized London property for £2.2 million, saving themselves £59,000 in stamp duty in the process, Bailey explained.
As for the 15% rate imposed on property purchases by “non-natural persons”, such as companies, and the threat of an annual charge on the value of residential properties valued at over £2 million, Bailey said the objective is to ensure that wealthy purchasers are not tempted to use off shore companies or similar structures which are difficult for UK authorities to track over time.
“It may dissuade some buyers from opting for this purchase route and may undermine the attractiveness of the UK as a home for their investment capital. However, it is far too early to try to quantify the potential impact in terms of number of purchasers,” he added.
The evidence from previous stamp duty hikes is that rising stamp duty rates tend to mean owners stay in their properties longer — there is a greater incentive to improve and extend properties rather than moving. The impact of this process is to reduce supply and reduce transaction volumes over time.
This article appeared on the Property page, The Edge Financial Daily, March 23, 2012.
