Tax rhetoric puts foreign investors off London property

“The market has to contend with political rhetoric regarding the taxation of high value property and ongoing background noise regarding a possible mansion tax...coming on top of successive tax changes including the non doms levy, increased stamp duty and the introduction of the annual tax on enveloped dwellings. Levels of prime new build stock coming to the market are also rising and high relative to occupational demand."

The exchange rate advantage was the catalyst for the rapid recovery in the prime central London housing market, supported by global safe haven investment flows and growth in global wealth, he explained, but that advantage has eroded as the pound grows stronger, he explained.

While foreign property owners face the introduction of 28pc capital gains tax in 2015, they can trade equities for free, and therefore investors may turn to the increasingly buoyant stock market.

Adam Waller, tax partner at PwC, explained that there is a 30pc arbitrage between buying property in the UK and playing the stock market. "Overseas investors will start to weigh up the political stability and proximity of London (especially for Russians) versus the tax burden," he said. "Although the international business community may still want a second home in London, they may just buy the one superflat, as opposed to buying a block as an investment."

In fact, Savills prime property index also revealed that at the very top of the market, properties worth over £10m, are plateauing, having only risen 1.9pc year-on-year.

“The world is no longer looking as risky as it was a year ago, so the safe haven characteristics of London property no longer look as attractive to foreign investors. Rather they are likely to be increasingly focused on maximising returns,” said Andrew Goodwin, senior economic advisor for the EY ITEM Club.

“Foreign investors may be struggling to find value in the prime London market now. Not only have sterling prices risen strongly, but the appreciation of the pound has magnified the increases when converted to foreign currency. Asian investors, in particular, had seen London property as being undervalued following the financial crisis, but are finding it less attractive now.”

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