Government actions relating to taxation and lending standards can significantly influence buyers worldwide, including luxury home buyers. In nearly all of the cities examined, recent changes to capital gains taxes, wealth taxes, transfer taxes, mortgage restrictions, and secondary residence taxes have created notable catalysts in the market. This section explores how specific policy changes have affected the markets in France, the United Kingdom, Hong Kong, the United States, and Canada.

››FRANCE In May 2012, President François Hollande rode into office on promises of high taxes for the rich, prompting an exodus of HNWIs to other countries. MrHollande’s 75 percent tax rate for those who earn more than €1 million annually caused many notable citizens to move to Belgium and the United Kingdom. The 75 percent income tax was cancelled by the French Constitutional Court in December 2012, and most of French taxes do not apply to foreigners. “But there is a real flow of French people leaving because of the taxes,” said Charles-Marie Jottras. Demand for luxury Parisian homes outstripped supply in recent years, particularly for homes in the most desirable neighborhoods. These tax changes may change that equation, causing many HNWIs to rethink their choice of location and investment options. As a result, dynamics of the French market have been in flux, with prices just recently starting to stabilize or even decline slightly. Additionally, the French government’s decision to almost double capital gains tax on property sales (from 19 percent to 34.5 percent), has exacerbated this trend, although a decision to reduce this to 20 percent for 2013 may calm these influences. A prized second-home destination for French and international HNWIs, the Côte d’Azur has witnessed volatility in the high-end residential market since the introduction of the new taxes. “Potential sellers are now either waiting until the government changes, or are asking higher prices for their homes so they can recover costs lost through these new taxes,” said Niki Van Eijk. Many potential buyers are now hesitant to purchase, with apprehension about the direction of the country.

›UNITED KINGDOM London’s prime real estate attracts buyers looking for safe-haven investment opportunities. In reaction to the market strength, the British Government introduced a new stamp duty of seven percent or more on properties valued at £2 million and upwards, which took effect in March 2012. Time will tell how this new tax will affect the market long term; however, given the short supply in the luxury segment, most expect the attractiveness of the London market to continue to outstrip any negative impact the new stamp tax might create. Andy Martin of Strutt & Parker noted: “Our recent sales activity continues to show, despite these changes, that London remains one of the leading cities in the world.”

›HONG KONG Hong Kong’s robust property market experienced a significant shift in October 2012, resulting from measures imposed by the government to curb property speculation and negate a growing asset bubble in the city’s property market. These measures included the introduction of a 15 percent stamp duty for corporate and non-resident buyers, as well as the extension of a tax on re-sale homes for properties held for less than three years. In February 2013, the government also doubled the sales tax for property sales over HK$2 million (US$258,000). These taxes had a major impact on the large numbers of Mainland Chinese investors, who were flooding the market in early 2012, but experts anticipate that long-term investors will return. “Hong Kong’s property market has high liquidity and remains a strong investment choice for mainlanders who wish to diversify their assets,” says KS Koh of affiliate Landscope Christie’s International Real Estate in Hong Kong.

›UNITED STATES Fears of significant capital gains tax increases in the United States had the opposite effect at the end of 2012, spurring many affluent sellers to complete large housing transactions by year’s end. “In New York, with the changes in tax laws, record low interest rates, and the inventory of available apartments at 30 percent below where it was a year ago, the incredible activity toward year’s end was not surprising,” said Hall F. Willkie of Brown Harris Stevens Residential Sales. It is unclear whether the higher capital gains tax will have an adverse effect on the market in 2013.

›CANADA Toronto’s real estate market – which has remained buoyant in recent years of global market turmoil – experienced its first step toward a buyers’ market in 2012, with sales declining in the second half of the year as a result of stricter mortgage lending guidelines: “This is the federal government’s attempt to control mortgage rules and their general approach to what is, in their mind, an overheated housing market,” stated Justine Deluce of Chestnut Park Real Estate.

 

Source: www.christiesrealestate.com

Luxury Defined: An Insight into the Luxury Residential Property Market