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Speculation as to the effect of the 2012 budget on the prime markets has been rife. This has not been helped by often conflicting messages from the market.

‘It is clear that the stamp duty increase and anti avoidance measures for sales over £2 million have added an element of caution. Not only have the increased transaction costs needed to be absorbed, but the unknown outcome of the consultation on annual charges and other tax measures for property held in corporate structures has caused some buyers to hold back,’ said Lucien Cook, director of residential research at Savills.

The firm’s prime central London index suggests a slowing in rate of price growth, with prices in the six months to the end of September rising by just 1.2%, in prime central London.
  
However the impact on transactions is less clear and paints a more complex picture. Some analysts have sought to draw conclusions from sales of over £2 million recorded by the Land Registry but Cook said that this is fraught with difficulty.

‘Historically the Land Registry  have only reported a proportion of the deals, with a significant mismatch between their data and that reported by the HMRC on deals at the top end of the market, noticeable over £1 million and even more so over £2 million,’ said Cook.

He also pointed out that there is a delay in sales hitting the Land Registry records, not just because they based on completion rather than exchange. ‘For example, when the Land Registry release their house price index, sales reported for the most recent month can often end up being just one third to a half of the sales eventually reported, it taking another two to three months before final figures are confirmed,’ he explained.

‘Our assessment of the market indicates that exchanges in the £2 million to £5 million range in London were down by between 20% and 25% in the second and third quarters of the year compared to the same period in 2011, but that they remained robust over £5 million,’ he added.

He said that importantly, the reduction in transactions reflects the fact that some sales have been brought below the £2 million threshold. ‘We have seen the number of sales between £2 million and £2.1 million fall by 65% but those between £1.9 million and £2 million rise by 71%. Partly as a consequence the effect appears to be more acute between, say, £2 million and £3 million than £3 million to £4 million,’ he added.

He also pointed out that it appears that wealthier buyers have been more prepared to take a view on the effect of the changes. Over £5 million there is no evidence of any impact in terms of the volume of transactions. In the third quarter of 2012 there were around 80 sales over £5 million worth a total of about £890 million across the whole London market. This compares to around 70 sales worth a total of £720 million in the third quarter of 2011.

‘Different impacts in different parts of the market go someway to explaining the mixed messages emanating from buying and selling agents alike. As we look forward, the precise effect of the tax changes will become much clearer after the autumn statement, once wealth advisors firm up on their advice on the best way to structure a transaction and whether those already owning through a corporate vehicle should de-envelope,’ said Cook.

‘As things stand, we believe that the measures will be the trigger for a plateauing of prices in 2013, before further gains are seen in 2014. This reflects the fact that tax, though important, is still just one of a series of factors that drives investment into the prime markets,’ he concluded.