Billionaires cool on London property as rich-bashing grows

byReuters|05 October 2012

London - The love affair between the globalsuper-rich and London property is souring as UK politicians tap into a mood ofpublic resentment of the wealthy, with tax increases and rhetoric playing uptheir own humble origins.

Prices of homes costing more than 10 millionpounds (S$20 million) have risen 56 per cent since 2007 as overseas investorspark money in the relative safety of London bricks and mortar, with foreignbuyers accounting for about a two thirds of deals, a report by propertyconsultant Knight Frank shows.

Prices in top neighbourhoods, such as Mayfair andKensington, will be flat next year after a slowdown that began in March with acoalition government budget that included a proposed "mansion tax",Knight Frank said on Friday.

Alex Michelin, founding partner of luxurydeveloper Finchatton, said: "A 3.5 million pound house in Chelsea was puton sale in March, but interest cooled rapidly after the budget.

It was like the buyers disappeared intoquicksand." Last month's sale of a property called Gordon House todevelopers the Candy Brothers was a key test of appetite because of the highasking price of 75 million pounds. It was bought for closer to 65 million,three sources told Reuters.

Personal wealth is a divisive issue in Britishpolitics, with Conservative Prime Minister David Cameron frequently underattack for his privileged upbringing, while many in the country suffer underausterity measures. Cameron is the latest in a long line of British primeministers to have attended Eton, one of the UK's top fee-paying schools.

Ed Miliband, leader of the opposition LabourParty, featured in a political broadcast on Tuesday that emphasised hisstate-school background, despite subsequent reports that his Primrose Hill homeis worth 1.6 million pounds.

Last year's opening of the luxury One Hyde Parkdevelopment n ear Harrods department store, with accompanying tales of stampduty avoidance and opulent second homes sitting empty, helped to spark thegovernment scrutiny, two sources told Reuters.

The March budget introduced a 15 per cent rate ofstamp duty for purchases of more than 2 million pounds through a company - amethod commonly used by wealthy buyers to avoid paying stamp duty and remainanonymous.

It also launched a consultation process on plansto levy an annual charge on properties worth more than 2 million pounds andextend capital gains tax to include overseas individuals who buy propertythrough companies. The government hopes to impose the charge from April nextyear.

The consultation period ends on Tuesday, butuncertainty has put a brake on the market, particularly for homes costingbetween 2 million pounds and 5 million pounds. Buyers of properties in thisrange tend to be less able to pay the extra taxes, Knight Frank said.

Opponents of the tax increases say that theinflux of the super-rich, many of whom come from Russia, Eastern Europe and theMiddle East, benefits the economy because they spend money in local businesses.

"For Nick Clegg (Lib Dem leader and deputyprime minister) to stamp on successful people buying property in London is ashort-sighted mistake," said Michelin, who will expand into New York andthe south of France because of the uncertainty.

Many buyers are sitting on the fence until thepicture clears, said Damian Bloom, a London-based partner at law firm BerwinLeighton Paisner, who specialises in the tax affairs of the super wealthy.

"George Osborne (the Chancellor of theExchequer) would have to make an awful lot of speeches about how wonderfulLondon is to counteract the fact that when clients pick up the phone to say 'Iwant to buy a house', the first thing they do is hit a whole load ofproblems," Bloom said.

A slowdown in the market, however, would bewelcomed by those who argue that the chasm in living standards is morallyrepugnant and exacerbates a housing shortage in London.

The Smith Institute, a left-leaning think tank,found in July that "many areas of inner London have become prohibitivelyexpensive for local residents and too many luxury flats remain empty andtreated as lucrative investments".

Much of London's continuing appeal lies in thefact that wealthy foreigners are not taxed on their overseas wealth if they arenot domiciled in the UK, though recent policies impose a levy of up to 50,000pounds on longer-term residents.

Buyers are also still attracted to London becauseit is outside the euro zone and alternatives such as France have become evenmore unwelcoming to the rich after the election of left-wing Prime MinisterFrancois Hollande.

The London slowdown could be temporary as buyerswait for the outcome of the consultation and seek loopholes in the new laws,said Sophie Dworetzsky, a partner at law firm Withers.

"What might be happening is everyone'staking a bit of a break while they figure out what they can do in terms of(ownership) structures. It might just be a lull before it kicks offagain."