Potential US buyers of luxury London homes are leaving multi-million pound discounts on the table as Brexit-related uncertainty stalks the capital’s high-end property market. Research by estate agent Savills found those buying so-called “prime” central London properties costing £5m or more can expect to pay 36 per cent less than in June 2014 when falls in sterling, property price fluctuations and stamp duty rises are taken into consideration.
Buying a £5m London home in June 2014 would have cost a US dollar buyer $9.1m, including stamp duty, Savills found. Purchasing the same property at the end of 2018 would have cost $5.8m, taking falling house prices in central London, stamp duty and currency changes into account — a difference of $3.3m (£2.5m) in just four years. Yet while a small number of US buyers have taken advantage of the discounts, property market experts said the strong influx of foreign buyers that historically follows sharp declines in sterling had yet to materialise.
Lucian Cook, director of residential research at Savills, said there had been no repeat of the bouncebacks seen in 2009 and the early 1990s. “In previous downturns it’s exactly this sort of currency-based advantage on top of a significant price adjustment that brought people back into the market. Previously it’s resulted in some pretty rapid recoveries. That hasn’t happened to anything like the same degree this time round.”
Average house prices in prime central London are now down by 19.4 per cent from their peak in mid-2014, Savills said, having finished 4.1 per cent down in 2018 alone. Sterling has fallen 25 per cent against the US dollar since the end of June 2014. Mr Cook said he still expected a bounceback among foreign buyers, but it had been delayed by negative Brexit sentiment, and its timing would depend further on whether Britain made an orderly departure from the EU. Another factor is the harsher tax environment for foreign property buyers, not only via increased stamp duty at the top end but also rule changes on capital gains tax and inheritance tax for overseas purchasers.
Roarie Scarisbrick, a buying agent at Property Vision, said transaction volumes had dropped off much more dramatically than prices in central London, with sales volumes at the top end having fallen by 40 to 50 per cent since 2014. “As you go up the value chain, the effect has been massive.” He said he had seen much interest from US buyers in the past year. “They are very much in the market. But it’s not a stampede — it’s a few very wealthy individuals who have spotted the discounts and it works for them.”
The FT this week reported that the US hedge fund billionaire Ken Griffin had bought a Georgian house near Buckingham Palace for £95m — down from an original asking price of £145m, according to people familiar with the purchase. Mr Scarisbrick said the market at the top end was being sustained by those who had an underlying or pressing need to buy in the capital for work or family reasons. “The speculative investor is out of the London market altogether.” Other dollar-based buyers, such as those from the Middle East, were also eyeing the currency advantage with great interest, he said, but remained “very nervous”.
“We’ve got such strong headwinds in the UK — a political crisis with unknown consequences combined with high prices and transaction costs. They’re all concerned that it could get a whole lot worse and turn on them.” Though euro-based buyers are also seeing substantial discounts on 2014 prices, they are similarly wary of committing to a purchase in a febrile political climate. “European buyers are largely sitting on their hands because they’re much closer to the action. They may feel they have greater exposure to a major fallout,” Mr Scarisbrick said.