British citizens are heading to the polls again on Thursday to vote for the next government to lead the country for the coming five years and chart the course for the country’s exit from the European Union.
And in the short-term, at least, the outcome will also shape sentiment in the luxury property market.
More:Read More News from the Prime Residential Market in London
Stability and clarity will likely aid the prime residential market if a majority backs the governing Conservative Party, its leader Prime Minister Theresa May and the decision to stay the course vis-a-vis Brexit, industry experts say. But the outcome is unlikely to reverse general stagnancy in the luxury home market, where increased taxes on high-end homes have dampened demand.
"If Theresa May wins, sentiment will return. But I think the market will still remain sluggish for two or three years," said Gary Hersham, principal at London-based Beauchamp Estates.
Pollsters are predicting a Conservative Party win, though the race has narrowed considerably since Ms. May announced the early election in April.
Besides the election results, there are other unknowns affecting sentiment among international buyers and high-net-worth Brits, such as whether the U.K. will proceed with a so-called "hard" or "soft" exit from the European Union, and recent terrorist attacks raising security concerns.
Those unknowns "will all ensure a high degree of caution," said Mark Pollack, director at estate agency Aston Chase.
"As such, I would not anticipate any meaningful capital growth for the foreseeable future, more a case of 'steady as she goes,’" Mr. Pollack said.
More:5 things to know about the U.K. general election this week
Real estate consultancy Knight Frank has predicted that no matter the outcome, prices in prime central London will end 2017 flat.
Meanwhile, a Labour Party win could pile on more uncertainty in the short term, as it would introduce a path for Britain to stay in the European Union after all. Buyers both foreign and domestic might wait until Labour leader Jeremy Corbyn sets definitive policy goals related to the real estate market and Brexit, and look at properties elsewhere in the meantime.
"Most international investors will sit on their hands and do nothing until such time that policies around property become clearer," Mr. Pollack said. "Similarly, I suspect that many wealthy U.K. residents will seriously explore the possibility of leaving these shores."
The biggest factor dampening interest in U.K. homes, especially those priced over £10 million (US$12.9 million), has been a stamp duty increase a year ago that charges a 15% tax on second homes priced over £1.5 million (US$1.94 million). Neither party plans to reverse the tax hike.
"Regardless of what happens and which way we go, the main issue that’s affecting the luxury market is the stamp duty," said Becky Fatemi, director at luxury real estate agency Rokstone in London. "That’s been the main hindrance."
#London sellers are setting sights sky-high ahead of the election w/ asking prices reaching an all-time peak https://t.co/Yajo2SrAq4 pic.twitter.com/aFAprSujAr
— Mansion Global (@MansionGlobal) May 24, 2017
To get around the political and economic uncertainty, many high-net-worth individuals are turning to luxury rentals instead of purchasing. Likewise, high-end owners are letting out their properties rather than selling, Ms. Fatemi said.
"My buyers have become renters and sellers have become landlords," she said.
Most of the luxury activity in London has been for properties priced at £5 million (US$6.45 million) and below, with ultra luxury homes getting inquires but infrequent buys.
"We have a lot of serial daters but no proposals," Ms. Fatemi said.
"We’re stuck in a period of stagnation," she added. "We need someone to come in and stir it up."