LONDON — Sales of new-build homes in London fell sharply in 2016 as changes to stamp duty and the Brexit vote began to bite, according to new Land Registry data.
The data, which was analysed by property fund London Central Portfolio, shows that in Prime Central London completed sales of new-build flats were down 41.4% in 2016 compared to the previous year. The luxury end of the market (£5 million plus) was the worst affected, with an annual fall in new-build sales of 57%.
Average prices also fell by 8.7% to £1.9 million.
In inner London — the 9 inner boroughs outside Prime Central London — sales of new-build flats were down 3.9% in 2016 compared to the previous year. However, a sharp 29% drop was recorded in the last quarter of the year — in the months following the Brexit vote — as the average price of a flat fell by 2.1% to £721,355.
The final quarter of the year also recorded a 34.6% fall in new build sales of flats under £1 million.
The sharp slowdown in a key part of London’s property market appears to be driven by two primary factors. The first is the shaky confidence in the central London property market following Brexit, which may help to explain why inner London new-build sales fell so sharply in the last quarter of the year.
The second is changes to the stamp duty tax which is levied on all new homes. Former chancellor George Osborne surprised investors in April 2016 by hiking stamp duty on second homes by 3%, and the move was widely-criticised for damaging an already fragile market.
The distorting effect of those tax changes is clear: In Prime Central London, for example, buyers rushed to beat the new additional rate, with 44% of all new build sales there taking place before April, and sales dropping off after.
Naomi Heaton, chief executive of LCP, said: “The struggling performance of the new build market in Inner London will certainly be beginning to worry developers.
“With high value sales to international buyers typically off-setting the cost of providing more modest housing and essential cash-flow to reinvest into new development, the Government may well struggle to deliver upon its affordable housing targets if this trend continues.”
“The large fall observed in Q4 for new flats under £1 million, targeting the domestic market, is also concerning.
“Alongside negative sentiment affecting purchasing decisions, with more economic uncertainty ahead, the fall was also be due to new caps on mortgage lending, restricting borrowing to 4.5 times salaries. This is hampering domestic buyers’ ability to get onto the housing ladder or trade up,” she said.