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Stamp duty receipts sharply higher despite fall in transactions

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Market Update: Stamp duty receipts sharply higher despite fall in transactions. Market resilient. Average UK property prices rise.

 

Prime Central London property offers a safe haven asset class, attractive yields versus cash, the opportunity for long term capital growth at a significantly lower price point than in recent years and at a very substantial discount in non-sterling terms. The doom mongers who predict that the market may fall dramatically have yet to be proved right by recent market statistics.

Over the last two to three years, London property as a whole, has seen a decline in buyer demand in Prime Central London. This in turn has led to a decline in property values particularly at the top end of the market. However, the amount of stamp duty collected on house sales in London rose by 11% in 2015-2016 to reach £3.4 billion following the introduction of higher rates in December 2014. The number of transactions was up by just under 4% over the year at 159,000. The greatest rise was in properties sold between £1.5 and £2 million where revenue increased by 26% although number of transactions was down by 7%.

In 2017 the government collected £2.53 billion in revenue in the second quarter (April to June) compared to £1.995 billion in the first quarter. Compared with the second quarter of 2016 stamp duty receipts were 19.2% higher. On an annual basis the government stamp duty receipts were £8.9 billion the highest on record.

These figures will dash hopes of many in the industry calling for stamp duty to be slashed to boost transaction volume and values; we believe the government is very unlikely to cut stamp duty in view of increased revenues and a perception that stamp duty tax cut would favour the rich and would not prove to be a vote winner.

Fears over Brexit causing a mass exodus of foreign investment from the capital have instead seemed to have the reverse effect; Encouraged by the lower value of the sterling, foreign investors have continued to buy Prime Central London property as housing values remain strong and investment returns continue to remain attractive over the long term. 3-4% gross rental yields compare favourably to almost zero interest rates in the bank although clearly interest rates have nowhere to go but up. Several of the new build schemes in London have met with strong demand with several schemes even selling out relatively quickly. Many of the house builders have announced rising profits. Persimmon’s profits recently soared by 30% in the first half of the year and profits at Barratt’s the UK’s biggest house builder surged by almost 9% in he second half of 2016, despite building fewer homes.

The latest data and analysis from ONS/Land Registry has revealed that average house prices in the UK have increased by 5.1% in the year to July 2017. The annual growth rate has slowed since mid-2016 but has remained broadly stable around 5% during 2017.  However, it is fair to say that it is the shortage of supply, historically low mortgage rates and relatively low unemployment which is underpinning prices, rather than strong buyer demand.

Prime Central London (PCL) prices have recovered in Q2 after two years of stagnation, data from the Land Registry has shown. Average prices in PCL saw a quarterly price growth of 7.9% to 1.95 million with sales volumes experiencing an annual increase of 4.8%. Lonres’ analysis of Chelsea prices in Q2 show an annual change of -4.2% in achieved prices (Jan-June), an increase in transactions of 64%, an average price £ psf of 1,591 and a discount on initial asking prices of 10%.

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Email: simondredzen@waltonestates.co.uk
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