Whilst changes in residential taxation, Brexit and global economic uncertainty resulted in notable sales falls in Prime Central London (PCL) in 2016, prices remained resilient suggesting that most homeowners opted to hold onto their properties, rather than sell, in a softer market.

Sales in 2016 in PCL were down 21% to December, calculated by London Central Portfolio based on Land Registry adjusted sales and Lonres data. The percentage fall in transactions was significantly greater post Q1. As buyers rushed to beat the April deadline for the new additional rate Stamp Duty, it is estimated that over 25% of all 2016 sales took place in March, whilst half of all sales for the year took place during the first three months.

Despite this highly reduced level of activity, average prices have increased. According to LCP’s analysis, Land Registry demonstrates a 4.5% price increase to October 2016 and Lonres reports a 1.3% increase across the year.

Falls in transactions were less marked within PCL’s most central areas, Inner Prime, down an average of 9% to October 2016. Prices over the same period in these areas also increased 1.6%. The suppression of price growth appears to be related to the new build sector. With new builds excluded, prices increased, on average, 5.0%.

Within Inner Prime, a particularly strong performance was seen within the more up and coming areas, which remained attractive to potential buyers with lower average prices, future growth potential and a reduced tax liability compared with the more luxury postcodes.

Marylebone, Fitzrovia and Soho put in the strongest performance, showing a 19.7% uplift in price over 2015. Price increases were also recorded for PCL’s other lower value areas, such as Notting Hill & Bayswater (11%), Pimlico (2.9%) and Westminster (2.6%).

The picture, however, was far less positive where prices average over £2m. 3 successive Stamp Duty increases since 2012, resulting in a rise from 5% to 15% for some purchases, alongside other aggressive tax hits, has seen this sector suffer. Chelsea was hardest hit, reflecting a 12.2% fall in average prices and a 28.5% fall in sales volumes. Falls in prices were also seen in Kensington and St James’s Park & Mayfair.

Naomi Heaton, CEO of LCP, comments: “Despite the series of new taxes impacting the market and uncertainty due to Brexit, the more up and coming areas of the market have remained attractive to buyers, particularly foreign investors, looking for good value in the face of weakening sterling. It is clear that in the current market, London’s centre of gravity has shifted from the traditional, luxury enclaves to the areas with lower entry prices, future growth and gentrification potential - and where tax increases have been far less painful. Stock in these areas also tends to be made up of small flats which are commercially rented. If buyers are unable to achieve their price expectations, they will generally hold and rent their asset, supporting prices.”

“Contrary to this dynamic, LCP's new analysis demonstrates the price correction which has taken place for the more traditional, luxury areas of PCL. Unlike the lower values areas, these markets have been hit harder by the succession of new taxes. Historically, they witness more volatility in periods of political and economic turmoil.”

Notably bucking the trend, however, the area encompassing Belgravia, Knightsbridge & South Kensington saw price growth of 3.8%. Interestingly, there was not a single new build sale.

Heaton comments: “As one of PCL’s most expensive areas, owners in this area may well be in a position to hold onto their assets rather than sell at a discounted price. This has supported price increases in Belgravia, Knightsbridge & South Kensington, but has resulted in significant falls in sales volumes, down 23.2%, the second highest after Chelsea.”

“On the whole, LCP would anticipate that after a year of constrained sales activity and increased uncertainty both in the USA and elsewhere in the EU, investors will actively re-enter the lower value end of the market. Dynamics may echo the recovery following the GFC when low interest rates, weak sterling and a softer market encouraged investors back in, resulting in a subsequent rally in prices. LCP therefore expect some price growth for this sector in 2017. For the luxury areas, however, it may take longer for the market to correct with prices rebasing themselves to take account of the additional buy-in costs owing to the new taxes. The introduction of the ‘look through’ non-dom IHT in April could further hamper the recovery of PCL’s luxury areas.” concludes Heaton.