China's economic slowdown will hit London's property market hard
As China's economy slows down, it is likely to hit London's property market hard since mainland Chinese buyers have become significant buyers of London's residential property. If Chinese banks face a significant worsening of their problem loans, this may reduce the number of Chinese buyers in London. This hit comes just as the London property market is recovering from recent changes to the stamp duty. According to Savills, heavy stamp duty bills will depress the market, causing house prices in London's prime areas to fall by 2% this year and not grow at all in 2016, before a slight recovery in 2017.

C entral London property prices will stagnate for two years as heavy stamp duty bills depress the market, a leading forecaster warned today.

Prices in “prime” neighbourhoods will fall by 2 per cent this year and not grow at all in 2016 before a slight recovery in 2017, according to revised projections by researchers at agents Savills.

The sombre forecasts mark a major reassessment of the central London property market in the light of Chancellor George Osborne’s reforms of stamp duty in the Autumn Statement last December.

Savills had previously predicted a 1 per cent fall this year before an 8 per cent bounce in 2016 and a further 6.5 per cent increase in 2017.

The new projections follow analysis from the Standard this week showing that almost a fifth of homes in London on the market for more than £1 million have had their prices reduced.

Lucian Cook, head of residential research at Savills, said: “It is fair to say that last year’s Autumn Statement took the market by surprise and has essentially prevented any bounceback in values post election, leaving little scope for significant value uplift next year, particularly in a low inflation environment.

“As such, we have pushed out our five-year forecast by a year to 18 months, building in a period of little or no growth as the market continues to adjust to a new fiscal and regulatory environment.”

The new stamp duty regime means that the tax rate is now more than 7 per cent for any property worth over £1.725 million. Mr Cook gave the example of a buyer in south-west London looking to trade up from a home worth £1.875 million to a property valued at £2.5 million after five years of ownership.

In that time the owners will have built up £518,000 of equity through price rises. However, the £213,750 stamp duty bill on their new home would wipe out 41 per cent of that equity.

Mr Cook said the “onerous” levels of stamp duty on the £1 million-plus market combined with “the inevitability of interest rate rises” meant that more Londoners are likely to look to move further out “where their money will stretch to a larger property”.

However, Savills still believe that London’s underlying appeal to buyers and its economic strength will lead to a more robust recovery in prices from 2018, when it forecasts a 5 per cent rise for prime central London followed by 6.5 per cent in 2019 and 2020.