Blog Post No. 173
Navigating the Changing Landscape: Wealth, Real Estate, and Mobility – 11th July Property Bulletin
“Mobility Mindset” an emerging approach to wealth creation and value generation
Individuals with significant wealth not only safeguard their assets through traditional means like real estate investments but also embrace a mindset that prioritizes mobility.
While conventional wisdom often focuses on cash, cryptocurrency, and tangible assets, wealth goes beyond these traditional forms. The Knight Frank Wealth Report 2023, reveals that ultra-high net worth individuals experienced a decline in wealth in 2022 but are now focused on capital growth, preservation, and income generation in 2023.
The report points out that ultra-high net worth individuals are increasingly investing in luxury assets, particularly art, and intending to allocate resources to this area in the future. This trend aligns with the growing interest in mobility as a wealth strategy.
The rise of mobility results from various factors, including the impact of the Covid-19 pandemic and the emergence of digital nomads. Additionally, favourable tax rates, incentives for global relocation, and the desire for increased freedom of movement have all contributed to the growing appeal of mobility as a wealth-building approach.
The significance of mobility in wealth creation extends beyond traditional assets like property, diamonds, and art. Time, information, and relationships also play crucial roles in defining wealth. Mobility plays an active part in diversifying one’s wealth portfolio.
There is an emerging trend of a “Mobility Mindset” as a means for wealthy individuals to navigate the complexities of the modern world. By combining traditional investments with a focus on mobility, including global relocation and digital value transfers, individuals can not only safeguard their wealth but also seize new opportunities for growth and value creation.
London house prices are predicted to experience a gradual decline or remain stagnant, rather than undergoing a significant crash
Despite a 2.6% annual fall in prices, the largest since the financial crisis, London’s property market has proven its resilience in the past. During the 2008-2009 financial crisis, prices slumped but recovered after measures such as interest rate reductions were implemented. The prolonged low-interest-rate environment, combined with government initiatives like the stamp duty holiday and Help to Buy, led to soaring prices in recent years. However, with the withdrawal of these supports, the future of London house prices is uncertain. While a long period of flat or slight price decreases is anticipated, a complete crash similar to the ones witnessed in the 1970s or 1990s seems unlikely. London’s status as a global city and the enduring appeal of desirable areas like Chelsea, Hampstead, and Notting Hill are expected to attract international investors who recognize the potential for bargains in a softening market. Despite economic challenges, the timeless allure of prime London properties remains.
Unlocking Growth Opportunities: Understanding Multiple Dwellings Relief for Real Estate Portfolio Expansion
Multiple Dwellings Relief (MDR) presents a valuable opportunity for those looking to expand their real estate portfolio. This relief helps reduce the Stamp Duty Land Tax (SDLT) payable on the purchase of additional residential properties in the UK, offering a strategic path to unlock growth. It is particularly advantageous for investors interested in acquiring multiple dwellings in a single transaction, enabling portfolio expansion in a financially efficient manner.
MDR works by minimizing the tax burden associated with acquiring multiple dwellings. Instead of calculating SDLT based on the total purchase price, the relief determines the tax due by averaging the prices of the dwellings. As a result, the tax liability is significantly reduced, making the acquisition of multiple properties more feasible for investors.
However, it is important to note that MDR is not automatically applied. Investors must actively claim the relief on their SDLT return. Additionally, a minimum of two dwellings must be involved in the transaction to qualify for the relief.
The benefits of MDR extend beyond tax savings. By facilitating the purchase of multiple properties at a reduced tax cost, the relief encourages portfolio diversification. This diversification strategy helps spread risks and enhances potential returns. For instance, investors can choose to acquire residential properties in various locations or of different types, such as apartments, houses, or bungalows.
MDR also supports the growth of the rental market. By making it more affordable to purchase multiple dwellings, investors are incentivized to rent out these properties, thereby increasing the supply of rental accommodation. This benefits investors through rental income and contributes to the broader economy by providing housing options for those unable to buy homes.
Despite its advantages, investors must comprehend the intricacies of MDR. For example, the relief does not apply to mixed-use properties, and the minimum tax threshold of 1% must still be met even after the relief is applied. Moreover, a successful MDR claim may impact the availability of other reliefs or exemptions. Therefore, seeking professional advice is essential to ensure effective utilization of the relief while complying with the relevant regulations.
In conclusion, MDR serves as a strategic tool for expanding real estate portfolios. By reducing SDLT on the acquisition of multiple dwellings, it provides a financial incentive for investors to diversify their holdings and contribute to the rental market. However, careful consideration and professional guidance are necessary to navigate the intricacies of MDR and maximize its benefits. As the real estate market continues to evolve, tools like MDR will play a crucial role in shaping investment strategies and unlocking growth opportunities.
Knight Frank’s recently published Wealth Report 2023 offers insights into the evolving landscape of wealth and the opportunities it presents. Despite challenges such as surging inflation and an energy crisis, the report suggests that Ultra High Net Worth Individuals (UHNWIs) and High Net Worth Individuals (HNWIs) should consider the real estate market as a source of potential growth in the second half of the year
Key findings from the Wealth Report 2023 include:
1. Ultra High Net Worth Individuals wealth declined by 10% in the previous year, with Europe experiencing the sharpest decrease at 17%. However, investors remain optimistic, with 69% expecting portfolio growth. This optimism stems from asset repricing, perceived value opportunities, and an anticipated economic rebound.
2. Real estate investments saw a decline in the latter half of the previous year due to expensive debt and increased uncertainty. Nevertheless, High Net Worth Individuals plan to invest their wealth, focusing on capital growth, preservation, and income generation. Real estate is seen as a hedge against inflation and a means of diversification.
3. The Prime International Residential Index (PIRI 100) shows that luxury house price growth slowed to 5.2% in the previous year, although it still marked the second strongest year on record. Positive price growth was observed in 85 out of 100 markets, with Dubai and Aspen leading the way.
4. Demand is increasing in sun and ski locations due to wealth preservation, hybrid working, and early retirement trends. Sectors such as healthcare, logistics, offices, and residential properties are also sought after by investors looking for income-generating assets.
5. The work-from-home trend has not diminished the interest of wealthy US investors in the office market. Offices are expected to be the leading sector for cross-border allocations, with London as the top target. Strong activity is also anticipated from Singapore, Canada, the UAE, Switzerland, and the wider UK market.
6. Rule changes in various countries, such as the Canadian ban on non-residents buying properties and the introduction of a new mansion tax in Los Angeles, will require Ultra High Net Worth Individuals and High Net Worth Individuals to navigate new regulations when investing in primary, secondary, or investment homes.
Looking ahead, it will be interesting to observe how investment allocation and property demand evolve in the latter half of the year. While change brings opportunities, established global hubs and the “safe havens” of residential and commercial properties are expected to remain attractive options for investors.
A report by estate agents Savills reveals that over 70% of prime central London properties sold this year have been purchased with cash, raising concerns about the impact on working Londoners
In the first seven months of the year, 71% of prime central London properties were bought mortgage-free, compared to 35% for the UK as a whole. Rising inflation and increased mortgage rates have made it more challenging for buyers to afford large home loans. However, Savills notes that despite these concerns, prime London residential values have remained resilient, with prices falling by only 1% compared to last year. The report highlights a growing divergence between cash and equity-rich buyers and other groups in their ability to transact, as well as differences in the performance of different market segments. Mayfair, Westminster, and Marylebone have been popular areas for overseas buyers seeking pied-à-terres, with increased demand from Asia, the Middle East, and the US. The report also reveals that more than 160 properties worth £10 million or more were sold in London in the 2022-23 financial year, the highest number since 2016.