Blog Post No. 185
Luxury Flat Sale, Landlord Incorporation, Asian Investment in Student Housing – 29th Aug Property Bulletin
London Flat Sale for £22m Signals Return of Super-Rich Amid Wealthy Russians’ Departure
A London flat recently sold for £22 million to a buyer from the Far East is seen as a sign of the super-rich returning to the city after the departure of wealthy Russians, according to property experts. The £21.95 million apartment, overlooking desirable Green Park, stands out as one of the few central London properties that have sold for over £5,000 per square foot, despite needing a complete refurbishment.
The South East Asian purchaser acquired the “super prime” four-bedroom property through an exclusive sale. Located on the fifth floor in a cul-de-sac, the flat offers views over St. James’s streets and Green Park. It’s classified as “super-prime,” reserved for properties worth more than £20 million.
The flat includes an art studio, parking facilities, a 24-hour porter, an office, a TV room, a living room, two kitchens, a spacious balcony, and is one of just six units in the building. Harvey Cyzer, co-owner of luxury home dealers Oliver Bernard, noted that the super prime London property market has shifted towards Far Eastern buyers over the past few years.
While the number of Russians in the market is declining, foreign buyers from the Far East are spending more extended periods in London, countering the perception of empty properties owned by mega-wealthy non-residents. This trend is attributed to London’s growing international status and increased social connections between international families.
This £22 million sale indicates a renewed interest from the super-rich in London’s property market, suggesting that the city’s appeal remains strong among international buyers.
The Rise of Landlord Limited Companies
In the past year, an increasing number of landlords have chosen to incorporate
The Pros of Landlord Incorporation. A growing number of portfolio landlords are considering the option of incorporating their property portfolios as limited companies. This strategy could result in substantial savings, potentially amounting to hundreds of thousands of pounds, in terms of Capital Gains Tax (CGT) and Stamp Duty Land Tax (SDLT). Nevertheless, a prominent tax expert has raised a cautionary note, emphasizing that stringent eligibility criteria and unforeseen repercussions might lead to costly outcomes.
Section 162 Incorporation Relief, an option available to landlords in the UK, enables them to incorporate their property portfolios into limited companies without incurring CGT or SDLT liabilities at the time of transfer.
For instance, if a landlord owns five rental properties with a combined value of £1 million, initially purchased for a total of £800,000, the potential savings on CGT alone through incorporation relief as a limited company could be £56,000.
Recent research conducted by specialist buy-to-let lender Paragon Bank for the first quarter of 2023 indicates that over 60% of landlords planning to acquire new rental properties intend to do so within a limited company structure. This represents a 5% increase compared to the previous quarter and a year-on-year surge of 12%, marking a return to the peak reported in Paragon’s PRS Trends report for the second quarter of 2022.
Notably, landlords who plan to purchase properties as individuals have decreased by 5% since the previous quarter, now constituting 24% of the total. Among those intending to make purchases within a limited company structure, 64% own six or more properties.
Rick Schofield, Tax Partner at leading UK accountancy firm Azets, highlights that incorporating as a limited company is a prudent move for landlords with long-term portfolio-building goals.
Nevertheless, he cautions that this strategy isn’t always straightforward and could result in costly outcomes for landlords who don’t seek professional advice.
Rick stated, “Before considering incorporation, landlords should evaluate whether they depend on rental income for their livelihood. Individuals are not eligible for incorporation relief, as a limited company structure incurs corporate taxation. If landlords require cash, it must be obtained through dividends, which incur further taxation.”
He added, “Incorporation as a limited company makes sense for landlords building portfolios who don’t need immediate cash. However, this process is intricate and susceptible to errors. To qualify for incorporation relief on CGT, the limited company must operate as a commercial entity. Typically, this necessitates owning five or more properties for at least two years and demonstrating active management, such as rent collection, repairs, and tenant vetting.”
Regarding SDLT, Rick noted that complexity exists, with divergent opinions on eligibility. Typically, landlords need to incorporate as a limited liability partnership and operate the business for a specific period. He urged landlords to seek tax advice due to the ambiguity surrounding this issue.
Rick concluded, “Unintended consequences of incorporation can have financial implications, particularly for those receiving means-tested benefits. Seeking professional advice is crucial to ensure optimal positioning and compliance with incorporation relief criteria.”
Property Owners Face Financial Losses Due to Lengthy Delays at UK Land Registry
Homeowners and buyers in Great Britain are growing increasingly frustrated by substantial delays in registering properties with the Land Registry, which are causing financial losses for many. Recent data from His Majesty’s Land Registry reveals that some applications for changes to property registers are taking nearly two years to process.
The Land Registry was originally established to streamline property transfers. However, professionals assisting people with property transactions and mortgage deals are now reporting severe delays. For instance, clients have faced challenges in obtaining new mortgage deals or refinancing as interest rates rise. One client who bought their property through the right-to-buy scheme in December 2021 is still awaiting registration as the owner.
Another case involves a client who attempted to add their spouse’s name to the mortgage deeds earlier this year, only to discover six months later that the request was still pending. This delay affected their ability to secure a new mortgage rate in a timely manner.
These delays have caused financial hardships for property owners, as some have had to pay higher variable interest rates while awaiting registration. Moreover, some clients have missed out on better mortgage offers due to the prolonged registration process.
The Land Registry’s recent data indicates that applications for initial land or property registration can take over 15 months, while applications for dividing existing titles or registering new leases can take over 22 months. Unregistered leases can prevent homeowners from selling their properties.
The Property Litigation Association highlights the impact of delays, noting that some properties are being sold with numerous outstanding Land Registry applications against them, leading to additional investigations and complications. The association attributes the issue to operational challenges and the Land Registry being understaffed.
While the Land Registry claims to handle over 98% of service requests promptly, complex applications, which constitute a small portion of the total, are experiencing delays for various reasons. The Land Registry has increased its staff count and established specialized teams to address older cases.
Scotland’s land registration system is also grappling with delays, with cases from 2017 still awaiting completion, according to Registers of Scotland. These delays are attributed in part to the COVID-19 pandemic, as well as complexities and staffing shortages.
Opting to Invest in UK Property? London Gains Momentum as UK PM Sunak Unveils £200 Million Funding for Barratt Project
Barratt London has received a boost as British Prime Minister Rishi Sunak declared an additional £200 million in government funding for the expansion of new housing within brownfield zones in London, during his visit to the Hayes Village regeneration project. The project, which has transformed a disused Nestlé factory site into residential units, caught the attention of Sunak, who previously visited during his time as Chancellor amidst the Covid-19 pandemic. Unlike his previous visit when the project had yet to gain customers, the development is now almost 50% sold.
London remains a prime destination for Indian investors, valued for its perceived stability and potential profitability. The city’s appeal is heightened by factors like the influx of students, consistent market performance over decades, and the reliability of the investment.
During his recent visit, Sunak revealed that the UK Government is focused on promoting housing construction in London, particularly emphasizing the utilization of brownfield developments in proximity to London Underground stations. The Hayes Village project encompasses 1,473 new residences, expansive park areas, a community center, retail and office spaces, leisure facilities, and a newly constructed footbridge across the Grand Union Canal. Notably, it’s situated within a 10-minute stroll from the Hayes & Harlington station.
Sunak emphasized, “Homeownership is a shared aspiration, and the moment of receiving your own keys holds special significance. Yet, for many, the dream of owning a home remains just that – a dream. Thus, I’m intervening to accelerate housebuilding efforts in the capital, with £200 million in funding to drive urban intensification and rejuvenate underutilized brownfield land.”
Gary Ennis, Barratt Developments’ Regional Managing Director for London and Southern, expressed, “It was a privilege to accompany the Prime Minister on a tour of Hayes Village and showcase the remarkable progress of this project since his last visit. He was able to witness the outstanding brownfield regeneration exemplified by this development, providing both residential and commercial spaces within the same site.”
Overseas buyers, seeking London residences, have shown keen interest in Hayes Village. With an anticipated capital growth of 19% within the upcoming five years and projected rental yields of up to 5.9%, the development presents a promising proposition. New homes start from £3.5 million.
Asian Investment Fuels UK’s Student Housing Market Boom
The UK’s student housing market is captivating Asian investors, particularly those from Singapore and Malaysia, as the country’s expanding university populations continue to amplify the shortage of available student accommodations. Capital from Asia has spearheaded significant recent investments in the UK’s student housing sector.
Q Investment Partners (QIP), a Singapore-based private equity firm, joined forces with Singaporean developer Soilbuild to create a £200 million investment platform dedicated to UK student housing. QIP’s CEO, Peter Young, emphasizes that Asian investors are becoming major players in shaping the future of the market, drawn by the combination of solid returns and stability that the UK’s purpose-built student accommodation (PBSA) sector offers.
Asian investors’ influence extends beyond QIP. Singapore’s GIC and City Developments, along with Malaysia’s Sunway RE Capital, have also entered the student property market. For instance, GIC partnered with Greystar Real Estate Partners to acquire Student Roost, the UK’s third-largest PBSA provider at the time, with over 23,000 beds.
The UK’s academic landscape, boasting over 200 colleges and universities, is poised for significant growth in both domestic and international student enrollments, far outpacing the expansion of student accommodations.
CBRE’s recent report revealed a scarcity of more than 350,000 student beds across 30 major UK university towns, with the shortfall reaching 106,000 beds in London alone. This persistent shortage is further exacerbated by the simultaneous lack of affordable homes in many urban centers, driving demand for student housing.
The supply gap looks set to persist due to various factors. Ongoing shortages in House in Multiple Occupation licences (required for shared residences) have removed tens of thousands of beds from the rental market. Moreover, universities focusing on upgrading academic facilities rather than housing have left the private sector to fill the gap.
Although the pandemic has led to construction delays and supply chain disruptions, the demand for PBSA remains strong, particularly among Chinese and Indian students. Chinese students, in particular, have been a driving force, with more than 150,000 studying in the UK during the 2021-2022 academic year. India is another substantial source of international students, with first-year enrollments nearly quintupling in three years.
Amidst this housing shortage, students from China and Hong Kong are also purchasing UK homes, providing a stable living environment while studying. Despite currency fluctuations, Chinese buyers remain undeterred, eager to secure accommodations after years of restricted mobility.
As Asian investors continue to recognize the potential in the UK’s student housing market, their capital injections are poised to shape the sector’s future while addressing the persistent shortage of accommodations.