Heavy stamp duty and market uncertainties brought about by Brexit continue to dampen prime central London markets, where average prices fell by 2.8% in the third quarter of 2016, and are now 10.6% below where they were in September 2014, according to a report released Thursday.
Properties valued over £10 million suffered the most, seeing prices drop a considerable 13.5% since their previous peak in 2014, according to global real estate consultancy Savills.
Overall, property prices in London declined 2.1% in the third quarter.
“Uncertainty surrounding the U.K.’s vote to leave the E.U. has compounded the extent to which successive increases in stamp duty have impacted the value of prime London’s housing market and will delay the return of price growth to the market,” said Lucian Cook, head of Residential Research at Savills.
Starting April 1, the U.K. government imposed a 3% increase in stamp duty on rental properties or second homes worth over £40,000. Properties worth more than £1.5 million have to pay 15% of the price instead of 12%. For a £10 million property, that means the buyer has an extra £300,000 tax burden.
More:What Do I Need to Know About the U.K. Stamp Duty Land Tax?
New developments hit especially hard
While luxury markets in general have been hit hard by stamp duty, homes under construction are also feeling the heat from the ever-plummeting pound. The number of residences sold before completion in the third quarter fell to 4,830 units from 5,636 a year earlier, representing a 14% decline, according to real estate firm Molior London.
“It is not surprising that buyers are switching from purchasing off-plan property to buying completed homes, the overseas buyers especially are wanting to make the most of the weak pound right now,” said Simon Barry, Head of New Developments at Harrods Estates.
The pound has lost about 18% of its value since the Brexit vote on June 23.
On the flip side, the weaker pound does present an opportunity to overseas buyers who are particularly active in the prime central London markets. Harrods Estates has seen a 20% increase in registrations, and a 40% rise in viewing figures.
“This is because there are more deals going on. What we have also seen is the return of buyers in prime central areas, where having stagnated for 18 months, prices look attractive again when compared to outer areas where demand and prices hadn’t slowed,” said Mr. Barry.
“There is still a lot of interest in stand-out, quality new-build buildings”, said Martin Lent, chief executive of SCM, the development managers for Two Fifty One in Elephant and Castle.
“We are continuing to see a strong interest in the development, but this is because long-term there is significant capital uplift to be had, as the area is currently undergoing a £3 billion investment program, which will make it one of the most desirable addresses in London,” he added.
Editor's Note: This article is updated on Oct. 17 to reflect the following change: The extra stamp duty in the U.K. is imposed on rental properties and second homes worth over £40,000, not any properties mistakenly stated previously.
Write to Fang Block at fang.block@dowjones.com