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London pays 43% of UK Stamp Duty revenue; investment outlook for capital strong

  • 13/02/2014
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London pays 43% of UK Stamp Duty revenue; investment outlook for capital strong
The Capital stumps up 43% of the national Stamp Duty Land Tax revenue up from 30% around 15 years ago, according to a property firm, with prices growth projected to rise strongly for another four years.

Estate agent Chesterton Humbert said the high Stamp Duty burden falling on London underlies the government’s “punitive rather than supportive” approach to the London housing market.

“The introduction of new and higher taxation of prime residential property has so far largely been absorbed by the market, however, it may have sown some seeds of uncertainty with regard to what may come next,” it said.

However the prognosis for the prime London market including popular residential areas including Hampstead, Kew and Canary Wharf, remains rosy. Prime capital values rose by 3.4% in Q4 2013 and by 11.3% for 2013 as a whole. The estate agent said prime capital values are expected to rise 48.5% in the four years to 2018.

The strong prognosis is being driven by a series of infrastructure projects, including the arrival of Crossrail in 2018 and the Northern line extension, the strength of off-plan development sales and rising confidence levels.

As the number of properties on the market remains low, house prices are expected to be driven up by sustained demand from foreign and domestic buyers. Overseas investors will continue to predominantly target apartments within new developments to add to their investment portfolios, whilst growing confidence that the economic recovery has taken hold will bring more domestic buyers to market.

Nick Barnes, head of research, said: “There is certainly a compelling case for investing in residential property in Prime London. Its long term track record is impressive, having delivered strong capital growth together with low volatility compared to equities and commodities whilst displaying low correlation with other mainstream asset classes. This has already attracted a wide range of prospective buyers.”

He continues: “Looking ahead, demand is likely to continue to outstrip supply which will sustain capital growth whilst the private rented sector is forecast to expand further as the economy picks up and labour markets improve, thus providing more opportunity for steady rental income.”
A weather vane for the confidence in this market is the rising numbers of buy-to-flip purchasers, who buy off-plan then sell before completion profiting from rising house prices.

However the commitment from 11 developers to market new-builds in the UK before or simultaneously as marketing abroad is less of a concern than thought.

Research from the Home Builders’ Federation (HBF) showed eight developers, who accounted for 44% of new homes built in London in 2012, confirmed just 11% of properties by volume were offered to overseas buyers first.

However, prime central London property as an investment class continues to outshine other assets, said Chesterton Humbert.

“We forecast that prime London capital values will rise by 10.1% this year. This compares with brent crude which is forecast to drop by 3% and gold which is expected to see only modest growth at best as the economic environment improves.”

It added: “Analysts are predicting a strong year for the FTSE 100 which many believe will break the 7,000 barrier for the first time by year-end, however even if it reaches 7,275, this will only represent a 7.8% uplift on the end-2013 position.”

The outlook around the UK also continues to brighten with 44% of sellers achieving asking price or more in January against 29% in September last year, according to the National Association of Estate agents.

With property demand continuing to rise, figures suggest seller numbers have hit a seven-year low, with eight buyers for every property on the market.

Jan Hÿtch, president of National Association of Estate Agents, said: “With confidence in the housing market increasing we are seeing more people looking to up-size and invest in property. The important first time buyer market also remained strong in January, but if competition for property continues to grow and the issue of supply persists, many would-be buyers may find themselves being priced out.”

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