London luxury home prices hit by longest slump in decades

The developer behind London’s Centre Point tower (pictured) stopped using external sales agents because the offers it was receiving for the luxury apartments were too low. (Bloomberg pic) 

LONDON: It was a symbol of the swagger in London’s luxury home market: a mansion in the trendy Notting Hill neighbourhood with a car elevator and a swimming pool that transforms into a ballroom at the touch of a button.

But just over a year after Havona House was listed with great fanfare for 25 million pounds (US$32.3 million), the owners of the seven-bedroom house have taken it off the market, stymied by the longest price slump in decades.

The sale prices of top-end homes in the British capital have been falling for nearly four years, weighed down by a cocktail of tax hikes, a crackdown on money laundering and a glut of new properties.

Uncertainty surrounding Brexit has only made things worse, and the recent decision to delay the divorce until Halloween means sellers’ long wait for the bottom will likely continue.

“It’s just not the right time to trade it,’’ said Becky Fatemi, a director at Rokstone, the broker that marketed Havona House.

Home prices in London’s swankiest districts began falling in August 2015, according to an index compiled by Knight Frank.

That predates the Brexit referendum by nearly a year and puts the downturn at 45 months, almost four times longer than the sharp plunge during the financial crisis, the broker’s data show.

While the duration of the current slump is grinding sellers down, price declines are less dramatic than in the past.

In prime central London prices are down about 12.9% since August 2015, according to Knight Frank’s index. That compares with a 22.3% drop during the financial crisis and a 20.7% decline in the early 1990s.

Evidence of the downturn’s impact is mounting.

The developer behind London’s Centre Point tower stopped using external sales agents because the offers it was receiving for the luxury apartments were too low, Estates Gazette reported in October.

The number of unsold homes under construction in the capital hit a record in March.

Some developers are turning to incentives and discounts to attract buyers, said Marc von Grundherr, a director at agent Benham & Reeves. “Some are offering free furniture packs, some are offering rental guarantees,” he said. “They’re thinking out of the box.”

The twists and turns of the Brexit negotiations have compounded the market’s woes.

The extension temporarily averted the extreme risks associated with a disorderly withdrawal, including a 30% plunge in house prices, according to the Bank of England’s worst-case scenario.

But this respite offers cold comfort to developers and home sellers who are impatient for the uncertainty to end.

“I’ve always said that what we could not cope with economically in this country is a long, prolonged period of uncertainty,’’ said Mark Preston, chief executive of the Grosvenor Group, the property company that owns large swaths of the upscale Belgravia and Mayfair districts on behalf of the billionaire Duke of Westminster. “And that’s now what we have got.’’

The market for prime and super-prime housing remains challenging, and demand from overseas buyers has slipped in part because of the political uncertainty in the UK caused by Brexit, according to a statement from British Land Co on Wednesday.

Changes to the rules on capital gains tax on property sales have also deterred investors from abroad, the developer said.

Increasingly there’s a sense that without a resolution of the political crisis, buyers will have little incentive to take the plunge even with the big discounts on offer.

“We have a number of buyers who are saying: ‘As soon as Brexit’s over, we’re ready to commit,’” said Alex Michelin, director of Finchatton, the luxury developer behind 20 Grosvenor Square, a Mayfair apartment project where prices start from 17.5 million pounds.

What the six-month delay does is “put us at this point of stasis again, where just nothing happens,” he said.

Sales of homes in London’s priciest districts fell to their lowest level in six years in the first three months of this year as buyers braced for Britain’s withdrawal from the European Union, originally scheduled for late March, according to research by Coutts & Co, the private bank owned by Royal Bank of Scotland Group Plc.

And when houses do sell, buyers are capitalising on the political chaos to demand discounts.

Prices for homes under 2 million pounds in the capital’s prime districts fell the most in a decade during the first quarter, according to data compiled by researcher LonRes.

Native Land, a luxury developer currently selling homes in London’s Holland Park neighborhood, has bagged seven sales this year at an average of 9 million pounds, according to sales director Nicholas Gray.

Still, “it is rare for us – or anyone – at the moment to get an asking price offer,’’ he said.