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Mass exodus of foreign investors predicted in Prime Central London

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  • 16/12/2015
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Mass exodus of foreign investors predicted in Prime Central London
Foreign buyers could be about to walk away from around 30,000 off-plan properties in the Prime Central London market, as nerves surrounding currency and tax fluctuations prompt potential investors to reconsider their plans.

According to 2016 projections published by estate agent Cluttons, foreign buyers are likely to be squeezed as currency fluctuations in emerging markets take hold and property value growth within Prime Central London continues to slowdown.

This is combined with a number of recent tax changes in the UK market, including the removal of the Stamp Duty slab structure, scrapping of capital gains tax exemptions for overseas buyers and the upcoming 3% Stamp Duty surcharge for second homes.

Cluttons’ head of research Faisal Durrani explained: “Based on research obtained from Molier, we estimate approximately 60,000 homes are due for completion in 2016 and 2017. From our own experience, at least at the moment anyway, it appears that up to 60% of new build units sold in London go to international buyers.

Durrani added that while Sterling had retained its strength, other emerging market currencies have taken ‘quite a beating’ recently, leaving them with little option but to exit the market.

He said that Malaysian buyers were paying an average of 31% more for properties than in the third quarter of 2007, while an Indian buyer would find it almost two-thirds more expensive.

James Hyman, Cluttons’ head of residential agency, explained that there was still strong interest in Prime Central London but due to heftier transaction costs, buyers were taking longer to decide on a purchase to ensure it met all their requirements.

“For example, if you bought a property at £3m in October last year, you would have paid £270,000 in Stamp Duty but a property at the same price today generates a £360,000 tax bill, which is a £90,000 difference. If you were to sell this property in a year or two, you would need it to have appreciated by 16% just to break even, which is unlikely to happen,” he said.

Durrani added that there was an upside to foreign buyers ditching their investments. “What this does mean is that you’ve got a strengthening new-build pipeline coming through and given that the Chancellor has introduced the London Help to Buy scheme, it means that while purchasing a property in London for first-time buyers may not be classed as affordable, it is attainable,” he said.

But Chesterton Humberts head of research Nick Barnes said Cluttons’ report was ‘overegged’. He added that while currency fluctuations were having an impact, buyers with new money from countries such as Turkey and Iran were beginning to express an interest in the market.

However, there are a lot ‘a lot more uncertainties’ going into 2016 than there were this time last year, he said.

“We have the election of the new mayor of London, with the Labour candidate already saying he intends to restrict foreign purchases of new homes, as well as the prospect of an earlier than expected referendum on Brexit which will have huge implications for the property market.

“This is notwithstanding any currency movements or any potential nasties on the tax front that the Chancellor could slip into the Budget. And that’s all leaving aside the supply and demand situation in the market itself.”

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