Whoever wins things have rarely looked as certain in PCL

Thursday, May 07, 2015 by

Talking to a wealthy London resident, non dom as it happens, he was telling me about the three reasons why he and his ilk love living here in London; Political and Legal stability, the Greenwich Meridian and Tax predictability. Lack of the latter,thanks to the election, has caused a great many to fret, top end agents to panic and a febrile late 70s vibe to start taking hold. If you listen there’s almost no one, at least no one who’s directly affected by the market that’ll be paying, with a positive word to say about possible upcoming taxes, with particular bile reserved for the so called Mansion Tax.


The seemingly unrelenting focus on uncertainty tinged with a particularly divisive form of political rhetoric has led to many believing, intuitively, that the top end of the London Property Market is set for a heavy fall.


However, a little conscious reasoning would seem to indicate that despite all the negativity things have rarely been more certain and by that I do not mean certain of a fall.


Firstly, the LibDems, who came up with the Mansion Tax idea in the first place, have watered their bands down to little more than a reasonably sensible extension of, and addition to, Council Tax. Labour has watered its target revenue raising figure down to roughly the same as the LibDems, implying they’ll follow suit. Even the Tories seem unusually acquiescent on the subject. However, no one mentions what happens above £5m, a level that seems stratospheric to most but in London barely buys you an extended cottage off the King’s Road, basement included naturally.


There is something faintly sinister about the fact that no political party will discuss how this bracket will be taxed. If you look at Treasury’s Annual Tax on Enveloped Dwellings the current annual levy on a property worth £5-£10m owned by a “non natural person” is £54,450 p.a.. It’s highly unlikely that a Mansion Tax will be quite that onerous but the possibility remains that the figure that must not be mentioned could be swingeing. For many this will be an irritating distraction but for some, mainly the quiet ones who’ve owned their houses for many years with little or no idea of what they’re worth, it will be enough to force them out. Oddly given the momentum of conversation on this topic even these people could have a benefit on the lower price ranges. This churn in the £5m plus market could actually have the exogenous consequence of pushing prices up in the £2-£5m bracket given the likely increase in demand from those who decide, or are forced, to rotate out of bigger properties.


 The second far is more relevant and concerns what has been driving the London market over the last five years or so, especially £5m plus: Currency weakness and Global Instability. Rarely have things looked so unstable, inside or outside our borders. Economic commentators daren’t even talk openly about the catastrophic effect a Grexit would have, a bellicose and economically wounded Russia are in need of a diversion and seem to have taken to flying planes that look awfully like second world war bombers around our shores, the Middle East has never looked more polarised, the Arab Spring has turned into a fundamentalist Winter, China has growth and structural issues and even the usually subtle Saudis have opened up a front in Yemen. EU/Union referendum issues are still on the horizon. Whilst going to a bureau de change might make you feel better when holidaying in Europe the currencies that matter still dominate us.


For overseas buyers seeking a safe haven the values of property in London offer more than a sock draw when it comes to stashing money. Despite the best efforts of politicians and the Treasury irritants like the Annual Tax on Enveloped Dwellings, enhanced Stamp Duty, CGT on gains after April this year…and now a Mansion Tax will not be enough to stop those who not only need to stash a few million but a secure place to live in if the balloon goes up. Whatever you feel about central London turning into a global piggy bank at least people want to be here, and when they are they spend a fortune. James Pickford, in his piece on wealthy homeowners in 2013, opined with back up research that those who own £5m properties spend £2-3m p.a. in the economy and those at £15m spend £5m. It would seem as if those who don’t like sharing their old haunts in Chelsea and Kensington with this new breed have found new ones in Emerging Prime. Certainly if I ask my 21 year old twins where they want to hang out Northcote Road, a trendy street in the Battersea/Clapham area of London has as much cachet as The King’s Road.


Somewhat gleeful headlines over the last few weeks have trumpeted that prime central London has been flagging over the last 12 months whilst other UK areas have powered ahead. The fact that central London now looks like reasonable value is relative of course, making further investment into the upper end of the market even more likely.


Things have rarely looked as certain, despite appearances to the contrary.


This article first appeared in FT House & Home 2nd May