With the recent release of the Autumn budget, investors in property were again hit by another surprise.
As of April 2016, Stamp Duty Land Tax will be 3% higher for buy to let investors and second homeowners although commercial developers are expected to be exempt from this hike.
What does this mean financially?
In simple terms, an investor looking to purchase a buy-to-let investment flat for £1 million in January of 2016 would pay £43,750 stamp duty land tax bill, which is an effective rate of 4.375%.
Now that same investor looking to buy the same buy-to-let investment in May 2016 for £1 million would be hit by a £73,750 tax bill – a whopping 7.375% effective rate.
Property investing is changing
To those in property, it is clear what Government is trying to make housing more affordable for end users – which obviously would make a lot of sense for any government. This is a move from the Government to shift the burden of delivering more affordable homes from their desk, to that of developers with incentives such as the build to rent scheme.
This comes off the back the December 2014 SDLT reform which led to a standstill in the the Prime Central London market. This along with the changing of taxation on off-shore entities that own UK property (now having to pay Capital Gains Tax, Inheritance Tax and Annual Tax on Enveloped Dwellings unless rental investments) it becomes apparent that the Government is trying to help the everyday home buyer.
Overseas investors have clearly become the collateral damage in this 11 month shake up.
What do we expect following all this?
The market will have to adjust and sellers will have to adjust their price expectation. This is likely to lead to a slow down in the Prime Central London market as sellers hold off selling until buyers (and inflation) match their expectation. We expect this drought in transaction could last years.
The Market has reached a point were transactions will drop dramatically, as one agent put it “The market has gone into a temporary coma!”
But these changing times also can present opportunities if you are a long term investor.
We expect that the market going forward will be dominated by necessity purchases but international buyers will still play a vital role as Britain and its properties are still viewed as a safe haven investment for many overseas investors.
Investment in residential property will shift to instituitional and corporate investors who will buy rental investments for medium to long term – think of setups like Legal & General. When these portfolios change hands the tenants will not be affected. Quality of rentals will improve as will security of tenure.
We think property flipping and unjustified hikes in prices will stop or slow substantially.