The number of £10 million-plus (US$12.2 million-plus) sales in the U.K. has tumbled 86% over the past year in the face of hefty stamp duty increases and Brexit uncertainty.
Just five so-called "super prime" homes changed hands between June and August, a slide from 35 recorded a year earlier, according to a fresh analysis of government data by property group London Central Portfolio. At the same time, the average price paid for the top five most expensive homes fell 25%, from £22 million to £16.3 million.
Areas away from central London were hardest hit, with no sales above £10 million outside the capital’s most desirable postcodes, compared with 30% of sales last year.
Similarly, zero super-prime new builds above £10 million were sold over the last three months, compared with last year where they made up 23% of sales, forcing many developers back to the drawing board.
"This fall away in super-prime new build demand is being corroborated by developers, with many looking to divide large, high-priced property into smaller flats to increase their attractiveness," said Naomi Heaton, the chief executive of LCP.
Clivedale, for example, is reworking its Hanover Square development to create four times more units, while Citygrove Securities and McClaren Properties are to replace seven townhouses in the posh Chelsea neighborhood with smaller units, according to Ms. Heaton.
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The Brexit has compounded the impact of a double dose of sales tax hikes, known as stamp duty, which has weighed heavily on demand since the U.K. government first slapped higher rates on more expensive homes at the end of 2014.
Under the old system, a buyer of a £2 million home would have had to pay £100,000 in stamp duty, but this has risen to £153,750. The cost of taxes on a £6 million property, meanwhile, has jumped from £420,000 to £633,750.
What’s more, buyers of second homes or investment properties face an even higher tax bill after an additional 3% surcharge was introduced for these purchasers back in April.
According to LCP, these findings could significantly impact next year’s Stamp Duty receipts. LCP believes that the reduction in super-prime activity in the last three months alone means the government could face a £45 million (US$55 million) fall in Stamp Duty receipts.
"This slowdown in the luxury property market—a big contributor for the Exchequer and UK economy—is very concerning," Ms. Heaton said. "As the government faces the daunting task of negotiating Brexit together with a potential slowdown in the UK economy, it should consider its strategy on residential-property taxation carefully to ensure it meets its objectives of increasing revenues."
More:Plummeting Pound a Boon to Foreign Buyers Seeking Luxury London Property
"Ironically, the rapid devaluation of sterling, now attracting foreign investors back to London, may be the biggest hope of salvaging a potentially embarrassing and costly situation," she added.
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