With the return of a Conservative majority government and the removal of the threat of a mansion tax, many agents and investors expected the luxury central London market to benefit. But sales in the prime postcodes of Chelsea, Belgravia, Knightsbridge, Mayfair, Marylebone, Hampstead and Kensingston have remained slow, price growth has been sluggish and there have even been falls - so what is dampening the market?

Many commentators point to the same cause of the market slowdown: the jump in stamp duty brought in by George Osborne in last year’s Autumn Statement, particularly the increase from 7% to 12% for homes worth more than £2m.

“You would have expected there to be some kind of bounce, because the mansion tax hung over the market a bit like Black Death,” says Trevor Abrahmsohn, whose firm, Glentree Estates, specialises in luxury homes in north-west London enclaves such as Hampstead and St John’s Wood.

“But stamp duty, which of course was meant to be a mixture of stamp duty and a type of mansion tax, was set too high. You can’t take a tax and within two years increase it by 2.5 times without having a major effect.”

Thomas van Straubenzee, partner at prime property agent VanHan, agrees. “I think that’s really the main problem. Suddenly the cost of moving has just got so much more expensive; when [stamp duty] went up to 7% [in 2012] everyone got pretty nervous because of the 2% jump. But then when nobody was expecting it, they skip up 5% just like that.”

Indeed, in December 2014, when the hike in tax was first introduced, prime central London suffered its first dip in value for average growth over three months to -0.3%, according to Hometrack.

Despite that, the market was still on track for year-on-year growth at 9.2%, but has since suffered continuous drops in three-monthly growth to -0.5% in January, -0.3% in February and -0.3% in March. Annual growth has now dropped from firm double digits dating back to July 2013 to as low as 2.2% annual growth in May.

However, since April, growth over three months has reached positive territory, and in a slight uptick hit 1.2% in July, while annual growth figures remained down at 4.1%.

Richard Donnell, research director of Hometrack, points to another reason prime central London growth may be slowing: sterling has appreciated compared with dollar-backed countries, making London much more expensive for foreign wealth. “Today, prime London property prices are up 90% from when they bottomed out in 2009. They are nearly 60% [above] where they were seven years ago, and with sterling appreciating that makes London look more expensive compared with other cities,” says Donnell.

He also says the introduction of capital gains tax for foreign investors in 2013 could be having an impact. “With these tax changes as well, we’re saying demand has cooled - there’s always demand for central London property, but you have these very strong growth spurts in London, then the market just goes through a period of re-adjustment and cooling.”

Both Abrahmsohn and van Straubenzee are seeing this cooling in demand among their clients.”You move now if you have to move and that means there are fewer buyers in the marketplace,” says Abrahmsohn.

He says there is now an oversupply because of the shortage of buyers, with only the “have-to-buys” willing to splash out.

Russian interest in high-end London property has also eased as tension and sanctions between the West and president Vladimir Putin ratcheted up last year.

However, Abrahmsohn says Chinese buyers are increasingly interested in London’s most expensive mansions, and predicts that Greek purchasers will soon come back into the market.

Van Straubenzee too has seen demand fall from clients who had previously been looking to move. “The moment you start looking into the costs of the relocation it kind of makes you think: ‘Crikey, you’re adding on 
as much as 15% with the stamp duty, the agencies, the legals and the cost of moving.’”

He says overpricing has also had an impact, where vendors believe they can achieve the sales numbers of their neighbours - but says this is often corrected quickly by the market.

“You get some properties on some streets that are slightly wider than others: they have parking, they have better gardens, bigger proportions, they face the right way, and if a property like that sells for, say, £3,000/sq ft, everyone then goes ‘well if they got £3,000/sq ft then my property is worth that much’.”

It really isn’t a bad thing for the market to have the steam taken out of it - Charlie Baxter, Alchemi Group

So should developers be worried about delivering into this market?

Alex Michelin, co-founder, Finchatton, who is developing 20 Grosvenor Square into luxury flats with the Abu Dhabi Investment Council, says that while stamp duty has dampened transaction levels, research by Knight Frank suggests the value of sales in super-prime areas has actually increased. He says Finchatton is still seeing strong demand for its Knightsbridge scheme - Cheval Place - which launches in September.

Charlie Baxter, managing director and co-founder of Alchemi Group, also thinks there is no need for concern as the market is widely expected to tick along at a slower rate of single-digit growth for the next few years. He says taking some of the heat out of the market may be beneficial over the longer term.

“The stamp duty [rise] was unfortunate, but we’ve had those sorts of things before that have taken the steam out of the market and, really, is that a bad thing? It certainly is if you’ve got properties to sell, but overall it isn’t really a bad thing for the market to have the steam taken out of it.”

Baxter is developing a luxury office-to-residential conversion at 55 Victoria Street in the West End, opposite the site of what will be the New Scotland Yard development. After the election, he says a number of sales went through, including big-ticket values such as two £4.5m apartment sales and a £7.5m sale.

But the process has been put on hold for the remaining 16 apartments and Alchemi has appointed a new agent to relaunch them to the market this autumn. The developer has also put a number of schemes up for sale, including 13-19 Leinster Square in Bayswater for £50m as well as Great Minster North in Westminster, which it sold to Brockton Capital for £137m in August.

However, Baxter says he is more positive about the market now than he was at the start of the year, when some of the sales decisions were made, and in hindsight he would have preferred to have held onto the assets. He has not changed pricing on 55 Victoria Street and says it will soon look cheap in comparison with the scheme over the road.

“Property in central London is aspirational in the same way that buying a Rolex watch or a Rolls-Royce or a Bentley is aspirational. So, ultimately, it’s almost on some people’s shopping lists,” he says.

“I believe the supply-and-demand thing will still hold out. Despite the fact there are a lot of developments coming online, there are an awful lot of people in the world.”

So, while the luxury end of the London resi may not have enjoyed the expected post-election bounce, taking the heat out of the market may not be such a bad thing.