London Prices set to fall by 14% in 2009

A recent report by Savills, a real estate adviser states that London’s luxury property market is expected to devalue by another 14% next year and that the total decline over the two-year period 2008-2009 may be 30%. This is slighly more pessimistic than their April report, which suggested a decline of 25%.

The report also states that prices for properties costing in excess of £1 million are likely to fall at a faster rate - 20% this year, because of reductions in demand from people employed in the financial services sector. The center for Economics and Business Research stated that London may lose as many as 62,000 jobs in the financial sector, which has long been the driving force behind London’s luxury real estate, along with a reduction in bonuses of 60% or £3.6 billion.

We’re not expecting any bonus money to go into the market this year and next. Any recovery is not going to be fueled by the central financial hub. Lucian Cook, Savills.

Prices in the “Super prime” market have also fallen around 20-25%, despite the falling value of the pound.

The report also suggests that London will be the first British market to recover, but this was unlikley to start happening until 2010, probably later for the rest of the country.

Savills

Luxury property prices values in central registered their first annual drop in five years following a drop in consumer confidence and fears that the UK is about to enter a recession. One bright note is the Ultra-Luxury segment, which still seems immune

London Luxury Property Prices Falling

Knight Frank, a London-based real estate consultancy reports that property prices in London’s 9 most expensive neighborhoods dropped 1.6% from August 2007. Values fell 1.3% from July, following drops in the previous three months. In fact, house prices across the U.K. have now fallen ten straight months and London is only now catching up with this trend.

According to the Nationwide Building Society, the average property has seen £20,000 wiped off its value and now stands at £164,654 and demand from buyers remains subdued.

Nationwide is known for its “conservative,” predictions, so this is actually a warning shot across the bows of property prices in the UK. Expect to see further drops this year and no recovery at least until end 2009.

Home-buyers are being affected “by pessimism in the financial services sector, particularly relating to the size of this year’s bonuses,” Liam Bailey, Knight Frank’s head of residential research, said in the statement.

Homes worth less than £1 million are the most affected, with appraised values down 9.2 percent from a year ago, because prospective buyers still rely on mortgages to make purchases.

Ultra-Luxury properties worth more than £10 million gained 2.9% from July, or 19% more than a year ago, basically because of demand from wealthy overseas investors paying cash.

Knight Frank describe these as “super prime” properties and suggest they “have proved immune from the downward trends elsewhere. There are now signs that the gap between this sector and the rest of the market is growing.”

Recent price records set include the most expensive basement flats in London, the sale to Lakshmi Mittal of the most expensive home in London for £117 million and the record price set for a luxury flat in St James’ Square.

Knight Frank compiles its monthly index from appraised values of representative properties in Mayfair, St John’s Wood, Regent’s Park, Kensington, Notting Hill, Chelsea, Knightsbridge, Belgravia and the South Bank neighborhoods of London.

April 15th seemed an appropriate day to bring this subject up. Forbes recently ran an article on the World’s Top Tax Havens , suggesting that some US states are joining these ranks. This is based on the fact that some US states are offering “Self-settled spendthrift trusts.” These trusts are not so much a tax-avoidance as a lawsuit-avoidance vehicle. A more detailed description is available here, although I understand they need  to be extremely carefully drafted to ensure this protection.

So, here are the World’s Top Ten Tax Havens according to Forbes, in no particular order.

Luxembourg

Luxembourg, officially the Grand Duchy of Luxembourg (Luxembourgish: Groussherzogtum Lëtzebuerg, French: Grand-Duché de Luxembourg, German: Großherzogtum Luxemburg), also spelled Luxemburg, is a small landlocked country in western Europe, bordered by Belgium, France, and Germany. Luxembourg has a population of under 500,000 in an area of approximately 1,000 sqare miles.Luxembourg has no capital gains, bank interest or dividends tax for non-residents. Taxes are not withheld on behalf of other governments, and it is the individual’s responsibility to report any investment income from their accounts there to the relevent tax authorities.

Liechtenstein

Forbes mistakenly called this country Lichtenstein, which is, in fact a small town in Saxony, Germany. Oh well, you can’t get it right every time. Even I made a mistake once. Just bear in mind the difference.

Liechtenstein is one of the few countries in the world which boasts more registered companies than citizens; it also boasts  a prosperous, highly industrialized, free-enterprise economy, and financial services sector as well as a living standard which compares favorably to those of the urban areas of her larger neighbors. Relatively low business taxes along with easy Rules of Incorporation and low personal taxes encourage this.

In February this year, the country’s LGT Bank was implicated in a tax-fraud scandal in Germany, which strained the ruling family’s relationship with the German government. Crown Prince Alois accused the German government of trafficking in stolen goods for its $7.3 million purchase of private banking information illegally offered by a former employee of LGT Group. The Liechtenstein official tourist site is here.

Bermuda

Bermuda consists of approximately 138 islands, with a total area of 20.6 square miles, and is a British overseas territory in the North Atlantic Ocean, located off the east coast of the United States. Bermuda is highly affluent and, like Liechtenstein, has a large financial services sector and a high GDP per capita. No income taxes, withholding tax or capital gains taxes make it an attractive financial destination. A subtropical climate, deep azure blue seas and beautiful pink beaches don’t damage it’s appeal either. The local wildlife looks good too.

Bermuda is an offshore financial center and is home to many foreign companies, particularly in the insurance, investment fund and special purpose vehicle areas. Don’t mention the subprime fiasco. Although, it’s fair to say the foreclosure mess is unliklely to make it as far as these particular shores, and some local real estate agencies are claiming the average cost of a house in Bermuda has now risen to over $1,8 million.

A more detailed look at Bermuda is here.

The Cayman Islands

The Cayman Islands are another  British overseas territory and are  located in the western Caribbean Sea, comprising: Grand Cayman, Cayman Brac, and Little Cayman. It is another offshore financial centre and with an average income of around $42,000, Caymanians enjoy the highest standard of living in the Caribbean. According to the CIA World Factbook, the Cayman Islands GDP per capita is the 8th highest in the world. The Cayman islands print their own currency, the Cayman Islands Dollar (KYD), which is pegged to the U.S. dollar at a fixed rate of 1 KYD = 1.2 USD.

The Cayman Islands are also home to more than 600 offshore banks and, according to Forbes, there is one hedge fund for every 5.6 Islanders.

Photo Credits

Also on Forbes’ list are The Channel Islands, The British Virgin Islands, Cook Islands, some U.S. states and Dubai.

Dubai

Dubai spends a lot of time in the property news, mostly because of the huge amount of luxury development going on there at the moment. We ourselves have covered a number of recent announcements:

Dubai Luxury developments

My own feeling is that the current tax-free and low-tax levels will, at some point in the future, be revised upwards. Possibly when the oil runs out?

Other tax havens not on the list but worth considering include Monaco and The Isle of Man. (Any excuse for a motorcycle photo)

IOM TT official site

And as a parting piece of fun on Tax day, this is George Harrison and Eric Clapton’s rendition of "Taxman."

Thanks to Luxury Clues for the suggestion.