Luxury property market will be sent into lockdown, house prices will tumble and the London economy will stall in the event of two general elections
The high-end property market has all but frozen ahead of the general election, temporarily paralysed by uncertainty and the vagaries of potential policies such as Labour’s mansion tax.
Estate agents specialising in lavish homes in London’s affluent core, typically unruffled by market forces, and bullish buyers who seek out the latest, prestigious addresses for their A-list clients, will admit through gritted teeth that the market for properties selling for millions of pounds has stagnated. But a more extreme scenario lurks on the horizon, threatening longer-term gridlock and price falls in London.
Behind closed doors, developers, agents, analysts and advisers are starting to contemplate the possibility of a second election soon after May 7, a situation that would force Britain’s luxury property market into lockdown.
“It’s the elephant in the room,” said Becky Fatemi, managing director of estate agent, Rokstone. “An absolute nightmare for the industry.”
While a double-header isn’t the most likely outcome, with an election this closely contested it’s still a possibility, said Andrew Hawkins, the chief executive of the political polling organisation, ComRes.
The Fixed-term Parliaments Act was introduced by the Conservative-Liberal Democrat coalition in 2011 to protect the incumbents by setting the period between elections at five years, and fixing the date for the next poll half a decade in advance. But it allows for the early dissolution of Parliament if a motion for an early general election is agreed either by at least two-thirds of the whole House, or if a motion of no confidence is passed and no alternative government is confirmed by the Commons within 14 days, Mr Hawkins explained.
“The use of a fixed-term parliament is deeply unpopular – effectively it takes the timing of an election out of the hands of the prime minister and gives it to the opposition. Therefore a second election could be triggered if the Act is repealed.”
Should David Cameron narrowly lose, he could also choose to force through another public vote. “If, in the immediate aftermath, the Tories have secured more votes than seats, and Labour scrapes over the line with a coalition, then Mr Cameron could immediately turn around and demand that the country deserves another chance at voting in a majority,” Mr Hawkins said.
Alternatively, a minority party in a coalition could also bring about the destruction of the newly-cobbled together government or a confidence vote could also be carried out at the Queen’s Speech on May 27 if it’s apparent that the country is in constitutional crisis.
Both the anticipation of a second election or a fractious coalition that is left to limp along could have dire consequences for an already jittery property market, particularly in the upper end of the London sector.
Recent research from Hamptons and Jefferies has shown that transactions slow ahead of a general election, to be followed by a price spike at the time of the vote and in the following six months.
According to the boss of the developer Urban & Civic, a fall in activity has been evident in the luxury end of the market, with the annual growth rate for the capital as a whole falling from 13pc year-on-year to January to 9.4pc this February, as reported by the Office for National Statistics.
But this slowdown would be exacerbated by the threat of back-to-back elections. Further uncertainty is particularly concerning given the 8,000 new upmarket homes due to go on sale this year in central London, at an average of £1.5m per apartment, and a development pipeline of £12bn.
Nigel Hugill, chairman of the Centre for Cities organisation and chief executive of Urban & Civic, said: “The long-term property market cycle led us to a cooling in London, but two elections would place a further restriction on activity in the capital.
“London changes direction quickly and substantial uncertainty will temper it further.” A potential mansion tax, an annual homeowner levy on property worth more than £2m, and action to remove non-dom status and the tax relief it affords, will continue to worry buyers, sellers and builders in the capital if the Tories do not win a majority.
“The SNP, Labour and the Liberal Democrats have talked gleefully about taxing property in London, but have been utterly unspecific about how to do it,” said Mr Hugill.
A double election will also hit volumes and therefore prices, he added, and analyst Adam Challis, head of residential research at property advisers JLL, agreed.
“Uncertainty breeds uncertainty, something that markets view dimly – expect to see currency depreciation, slower investment and a level of caution to permeate. In the housing market, I would expect activity to remain weak which will have a modest negative impact on prices, mortgage levels will stay low and central London will bear the brunt,” he said.
The mainstream market in the capital has shown signs of picking up this spring after a muted six months, with housebuilders Taylor Wimpey and Telford Homes both reporting strong demand for new homes in the first quarter, and the extension of the Government’s shared-equity Help to Buy Scheme, along with an accompanying Isa, boosting confidence.
However, a downturn in the top tiers of the property market will have a knock-on effect on the rest of the South East as a reduction of capital flows and investment into glamorous property and buy-to-let blocks hits jobs and, crudely put, slows the rate at which London families sell up in the centre and trade up into the commuter belt.
Anthony Codling, a property analyst at the broker, Jefferies, said: “In the mainstream market, there would be a potential transaction lull as people put off moving plans until the shape of government starts to [become clearer].”
The consensus among specialists is that a double election whammy would send the £2m-plus property market and the London economy into “groundhog day”.
Jake Russell, of Russell Simpson, an estate agent in Kensington and Chelsea, said: “A double election resulting from a hung Parliament would lead to further uncertainty, a groundhog day, and in all likelihood, prospective purchasers continuing to ‘wait and see’. The property-related Left-wing policies have far-reaching implications which not only target wealth-creators but close London off to international business and investors, undermining London as a world-class city.”
Mr Russell said that Ed Miliband’s non-dom proposals would trigger an exodus of investment in the London property market, “as the great business minds of the globe, alongside wealthy overseas individuals, seek to invest elsewhere”.
Vic Chhabria, director of Rescorp Residential, an upmarket agent in St John’s Wood, agreed, saying: “For argument’s sake, let’s say a Labour-Liberal Democrat coalition comes into power and it all collapses. I believe a Conservative-Lib Dem coalition would bring about a new wave of confidence and would very quickly act as a catalyst for a bounce-back of the housing industry.
“If the time lag for the double election exceeds the gestation period and the Labour-Lib Dems have already enforced legislation on all their levies and taxes, my fear is that the recovery of the housing market will be too little and too late.”
By that time, those with non-dom status may have already opted for alternative more favourable tax jurisdictions with no intention of returning to the UK, he warned.
Lawyers, dealing with multi-million pound sales, are also nervous. “Uncertainty is the killer in the short term,” said Tom Moran, a partner at Charles Russell Speechlys.
“In the long term, the danger is that what has been a flourishing and prestigious property market will be permanently damaged.
“If the UK decides to ‘punish’ the overseas buyer [by scrapping non-dom status in relation to capital gains tax], the overseas buyer may decide to invest their significant capital in other economies, with all the impact on the sophisticated service economy in London and southern England that would entail.”
The message from across the luxury property industry is as audible as the outcome of the election is uncertain.
A double election or prolonged political uncertainty won’t just hit demand for boutique, luxury schemes in the capital’s core, which will filter out into mainstream housing, but it could also deter vital investment into the development of flagship buildings, office blocks and transport infrastructure at a fragile point in the UK’s economic recovery.