The estate agents Knight Frank and the accountacy firm EY have attempted to compile an index of the total costs of buying, selling and holding a property across 15 global cities. Their research compared properties that were worth between $1m and $10m.
They found that the property costs of a home in London worth $1m was around 7.8%. Paris was the most expensive at 15.3%, and Berlin and Geneva were 13.3% and 12.6% respectively .
The authors of the report said:
“London sits neatly in the middle of the 15 cities when analysing both property costs and tax costs.”
Shanghai was the cheapest city, in terms of property costs, with the cost of $1m and $10m investments over five years equalling 2.9% and 2.3% respectively.
Included in the research were charges such as buying agent’s fees, legal fees, management costs and service charges. Local authority charges were included in the category of “property costs”.
Once other costs such as capital gains tax, stamp duties and annual property taxes has been taken into account, the outcomes changed significantly.
Sao Paulo has the highest percentage of levies- sitting at 31.5%. Hong Kong followed closely behind at 22.4%.
When you consider $10m properties, Singapore and Hong Kong charged 20.5% and 23.2% respectively. The newly introduced stamp duty in London lifted its total to 20.7%, while Paris was further down the list at 12.8%. Tax havens such as Monaco and Dubai were 3.5% and 3.6% respectively.
A tax services partner at EY, Carolyn Steppler, said:
“When purchasing property as an investment, tax is not necessarily the first concern but it is important because it is often the after-tax return that measures the success of the investment.”
Large rises in the London prime property market have been attributed to investors trying to protect themselves from the eurozone crisis by investing housing instead. However, the market has dipped in the last 12 months and Knight Frank reported a 30% fall in the number of new buyers looking for a home in September 2015 compared to the same month in 2014.
The authors said in their report:
“As the rate of price growth slows in many global city markets, transaction costs and taxation are becoming increasingly important considerations for investors.”
The global head of research at Knight Frank, Liam Bailey, said that the purpose of the study was to provide a yardstick against which investors could compare the global cities in question.
“In reality, tax variability is a much larger influence on overall costs, in particular as the rate of change of property taxes has increased in recent years.”
The study assumed that:
“The home was purchased in August 2015 in the buyer ‘s name, rather than held in a corporate structure, and rented out for five years before being sold in 2020. It also took the buyer to have non-domiciled status as an overseas buyer, and to be buying the property with cash; hence any buy-let mortgage costs were not included.”