(Bloomberg) -- Developers are delaying new luxury-home projects in London after successive increases in sales taxes made building less profitable, according to consulting firm Arcadis NV.
Plans are also being redrawn in some developments to reduce the size of apartments and make them more affordable, Arcadis said in a report Thursday. The moves come after a 3 percentage point rise in the stamp-duty sales tax for landlords and second home owners in April which followed an increase in charges for all luxury-home purchasers in December 2014.
“A number of clients have said that further phases of schemes are being paused or put on hold,” Mark Cleverly, the London-based head of commercial development at Arcadis, said in an interview. “The extra stamp-duty tax is strangling the luxury market.”
The number of upscale homes in the U.K. capital with planning permission has risen 40 percent from a year ago to a record 35,005, Arcadis’s data show. Incentives designed to stimulate demand, such as offering to pay purchasers’ stamp duty, have curbed profit margins by as much as 7 percent on the most expensive homes, the report said.
Redesigning projects to include more smaller apartments and fewer larger homes will enable developers to maintain values on a per-square-foot basis while reducing the tax burden on purchasers. The company redeveloping Battersea Power Station is seeking approval for more smaller homes to help cut prices by 25 percent.
“Making prime homes more expensive with a tax is just going to exacerbate the risks of over supply,” Cleverly said. The result will be lower tax receipts for the government and potentially fewer homes built, he said.
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