London’s Luxury Homes Struggle as Sales Plummet

A Knight Frank report reveals a 22% drop in sales of homes over £10 million, highlighting challenges in London’s luxury real estate market.

London's luxury real estate market is currently navigating turbulent waters, with both demand and transactions experiencing a notable decline. A recent analysis by the esteemed real estate firm Knight Frank reveals a staggering 22% drop in sales of properties priced above £10 million ($13.2 million) over the past year, when juxtaposed with the preceding 2022-23 period. The situation becomes even more dire for the ultra-high-end segment, where only 10 properties above £30 million changed hands, a significant decrease from 38 in the previous timeframe. Cumulatively, the super-prime sales volume in London reached £2.77 billion in the year ending July, a stark contrast to the £4.3 billion recorded in the prior year.

Market analysts attribute much of this uncertainty to the political landscape, particularly the recent election in July, which was widely anticipated to herald a governmental shift. The Labour Party, which emerged victorious, had consistently outperformed the Conservative Party in polls, a party that had held the reins of power for over a decade. Compounding this political uncertainty are the elevated interest rates; the Bank of England, after a four-year hiatus, finally implemented its first rate cut this August.

The ramifications of the new government have sparked a wave of apprehension, particularly regarding potential alterations to the tax regime. Stuart Bailey, head of super-prime sales at Knight Frank, notes that the specter of tax hikes looms large, with the Labour government contemplating increases to capital gains and inheritance taxes. These changes are expected to be unveiled in the forthcoming UK budget, scheduled for October 30. Additionally, the government is likely to reassess its tax framework for the 74,000 individuals residing in the UK who currently enjoy non-domiciled status—an arrangement that has historically benefited some of the wealthiest individuals, including a significant proportion of the UK's top-earning bankers.

The uncertainty surrounding potential tax increases and the possible elimination of preferential tax treatment for affluent foreigners has left high-net-worth buyers feeling jittery, according to brokers. The report further indicates that properties in prime central London priced above £10 million are now valued at 14% below their peak in September 2015. When viewed through the lens of the dollar, the decline is even more pronounced at 25%, largely attributable to the depreciation of the pound since the Brexit referendum in 2016. This shift has attracted a wave of American buyers to the London market, as their dollars now stretch further than they did in the past.

The confluence of political upheaval, economic uncertainty, and potential tax reforms has created a perfect storm for London’s luxury real estate market, leaving both buyers and sellers in a state of apprehension as they navigate these choppy waters.