U.S. Election – The Aftermath – Autumn 2016

First Brexit and then Donald Trump, arguably both the result of protest votes, both unexpected and both of momentous importance, indicating changing attitudes to the world.

So far financial markets have reacted in a measured way, the various stock markets have been steady, it is of course almost impossible to predict long term trends. However Donald Trump is a hugely successful business man, the consensus of opinion seems to be that his fiscal policies are likely to favour American business and this in turn should encourage international business.

Turning to London, if the US prospers it is likely that the “Special Relationship”, that Trump appears keen to continue to support will enhance prospects in the UK, and will encourage inward investment from the US.

The effects of a prospering US economy will be felt world wide, and in this scenario London should be a major beneficiary, as more and more companies will increase their presence in the capital, which is after all a major financial and cultural centre, allowing business to be conducted throughout the world during the working day.

The prime central London property market has suffered a very difficult year, uncertainty makes decision making difficult for both domestic users and equally, if not more so, for the international investor, of which there are many in the UK.

We believe that as the uncertainties of recent months start to ebb away and the future becomes clearer, buyers will return to the London market and that as sentiment improves and investors accept the status quo we will see a return to more normal market conditions with improved turnover and modest growth.

Trends – Summer 2016

Source: LonRes

Brexit – Don’t Panic

24 June 2016

The question what happens next? following the UK’s referendum result, is uppermost in people’s minds.

Prime Portfolio, specialists in Prime London Residential Real Estate, and the Directors have been advising both investors and end users on their residential property portfolios for some 40 years between them.

Clearly investors are rightly considering their options with a mixture of trepidation and anticipation, and justly so.

The market has however proved to be very resilient when there have been both political and financial crises such as in the early 90s and 2008 when the market corrected and then bounced back to its pre-correction levels within 18-24 months.

It is certainly possible that the market will once again correct, given the weakening pound, changes in political leadership in both the Conservative Party, and possibly the Labour Party, and the impending negotiations for exit.

Demand has always outstripped supply in the Prime areas, and we would expect that this will continue. Even if values do weaken, this may deter some vendors from placing their properties on the market but others will need to sell for a myriad of reasons.

We think that this may present some very interesting opportunities for buyers in the coming months.

Overseas investors have already factored in the unfavourable changes in the tax legislation to their calculations. The other uncertainty this year has obviously been the Referendum which has now been resolved, removing a further area of uncertainty although introducing an additional period of change.

Turning to the lettings market, it will be interesting to see what happens to tenant interest in the medium-term, particularly in the corporate tenant market whilst their employers adopt a “wait and see” approach during the initial period of political and financial uncertainty. In the short term the lettings market should return to its buoyant self, there has been a relative lull in the wake of the referendum, and we feel that confidence in knowing a decision has been reached will ensure it is business as usual for the majority of tenants.

On balance our view is that we are entering a period of opportunity and that an investor or home buyer, prepared to buy in the coming months, will not regret their decision as undoubtedly the market will stabilise and move forward. Bricks and mortar will continue to be a safe asset class, especially in times of change.

Budget Comment

by Chris Mercer – 29 March 2016

As it turned out, reaction to the March 2016 Budget was deservedly dominated as much by the political as by the economic aspects of the (spectacularly mishandled) on-off alterations to disability benefits. That aside there was comparatively little of substance to the changes announced for most areas, no doubt with at least one eye on avoiding squalls before the looming referendum on EU membership.

The most significant changes to the tax system influencing the central London residential property market are either already in place (the extension last year of Capital Gains Tax to non-residents); or have been announced previously with a definite timetable (the extension next year of Inheritance Tax to property enveloped in offshore limited companies; the phased reduction in tax relief on mortgage interest). Reductions in the rate of CGT were announced in the Budget, but the current rates will continue to apply to gains on residential property. This leaves confirmation of changes to Stamp Duty Land Tax (SDLT) as the main property-related feature of the Budget.

SDLT is a temptation for any cash-strapped Chancellor. Property transactions are a lucrative source of income for the government; collection of SDLT is effected largely through the legal profession, and the purchaser pays his lawyer to deal with it, making it highly cost-effective compared to most other taxes. And so the announcement last November warning that there would be a 3% surcharge on the SDLT rates applicable to investment properties, not immediately but from 1 April 2016, carried a whiff of Saint Augustine about it: O property investors, cease cashing in your pension pots to buy-to-let – but not just yet.

The details of the proposed surcharge trailed in November 2015 were confirmed in the Budget and there are no surprises in the main feature, namely that in most cases residential property purchased to let or as a second home will attract a rate of SDLT three percentage points higher across all bands of SDLT. Thus the rates for such property will be:


Purchase price of property – Rate paid on portion of price within each band

Up to £125,000 – 3%

Over £125,000 and up to £250,000 – 5%

Over £250,000 and up to £925,000 – 8%

Over £925,000 and up to £1,500,000 – 13%

Over £1,500,000 – 15%


As usual, the interest is in the detail:

  1. The higher rate of SDLT applies to the purchase of any property that it is not to be used as the purchaser’s “only or main residence”. This does not automatically mean that it only applies to the purchase of any property after the first, although that will often be the case. An “only or main residence” does not have to be in the UK, although how this will be checked is not specified.
  2. There can be an overlap period of up to 36 months between the purchase of a property intended to be the main residence, and the sale of an existing property that is the purchaser’s current main residence.
  3. A property does not have to be owned to constitute an “only or main residence”. There can be a gap after the disposal of a main residence before another property is bought which replaces it as the main residence, if in the meantime the purchaser rents another property – for a term not exceeding seven years – and uses it as his main residence (quite possibly whilst owning other property which is let or is otherwise not used as a main residence).
  4. A purchaser of six or more properties in one transaction will not necessarily be subject to the SDLT surcharge but can opt to apply the non-residential rates of SDLT which may be more beneficial.
  5. A “non-natural person” such as a limited company, buying a property for over £500,000 and therefore already liable to pay SDLT at a higher rate of 15%, will not be liable to pay the 3% surcharge in addition.

Not surprisingly there are no opportunities presented by the new regulations to reduce the costs associated with acquiring residential property for letting. But an interesting feature is that the comparative disadvantage heaped upon the use of a limited company as an ownership structure in the last few years has been diminished. At the higher end of the market the disparity in SDLT payable has been reduced, and the phased restriction from next year on the relief available for mortgage interest paid on let property does not apply to limited companies, UK or offshore. That is not to say that the use of a corporate envelope to purchase property is definitely beneficial, but it remains worthy of consideration if the property is being purchased for letting.

Chris Mercer MTM Ltd – MTM Ltd is a consultant tax advisor specialising in guiding overseas and ex-patriot investors.

 

UK House Prices

UK house prices: Housing indices like the ONS and Rightmove just aren’t in line with reality

by Harry Lewis – 23 February 2016

For those of us involved with the prime central London (PCL) residential property market, last week delivered some ‘good’ news; where the latest ONS housing data showed an annual increase of 9.4 per cent.

That lead Rightmove to announce that the capital has seen the biggest rise in asking prices, year-on-year, than any other region in the UK, increasing by 10.5 per cent to £643,843.

At a time when every headline seems to be warning of either the return of another financial crisis, the global markets faltering or fresh European uncertainty, this positive news came as a welcome relief to many.

However any celebration must be short-lived as these figures are simply not reflective of the market.

In particular, one factor lies within London’s new build market and the difference between asking prices and the prices – or should we say value(?) – achieved on sale. The glut of new build properties that have recently come up for sale – which are now struggling to sell – have thrown the indices off the scale.

It is clear that most developers built their schemes, based upon exit prices that reflected a rising market. Contrary to a low interest rate environment, some of the solutions to provide development finance were driven within the shadow banking sector which typically prices debt at a premium to achieve target returns for their investors.

The consequence for developers today has become all too apparent, as marketing periods will be extended. Exit prices will come under severe pressure – once all purchaser incentives have been exhausted – and these asking prices are set to be reduced, which will cause much consternation in the press – when in actuality, values won’t be tested in equal measure.

The recent stamp duty (SDLT) changes have been mooted as cause and effect on the PCL slowdown; but the reasons for the lack of transactions taking place can’t just be placed at the door of one directive or another.

London’s second hand stock is stagnating – in market uncertainty all impetus to trade disappears.

Therefore because the second hand market is emotive and not wholly dependent on cashflow targets and finance packages, prices can remain constant.

It therefore stands to reason that the usual confusion, over value versus price, is only being compounded by these statistics; and we need to wait until the disparity between the new development and the resale sectors diminishes, to see the real picture of the PCL market.

The focus this year, in an uncertain market economy, should be towards mitigating risk; thereby projecting forward to create a multiple of solutions, rather than just one inevitable outcome.

Harry Lewis works at London-based financial advisory firm, W.Coleman & Co.
W. Coleman & Co has a long standing working relationship with Prime Portfolio and provides financial advice to clients that require it.

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The London Market

In our view – Spring 2016

Recent changes in tax legislation have taken their toll on the prime residential market in central London, international buyers have been worst affected, particularly as a result of the hike in stamp duty at the upper end, and the introduction of inheritance tax to those holding property within structures that were previously exempt. Additionally in the Autumn Statement the Chancellor has said, subject to consultation, that there will, from April, be an additional 3% on stamp duty for all buy-to-let investments. All this combined with the very unsettled conditions prevailing globally at present have conspired to slow the market.

London though is a ‘must have’ for wealthy investors, and a prime property is a requirement for an investment portfolio, to a certain extent regardless of rental yield. There is little doubt that the potential for considerable capital growth remains.

We believe that in the coming months the market will ride above the current economic, tax and international unsettlement and will move forward from its present stagnant position.

In the light of the comments above Prime Portfolio’s view is that 2016 continues to present a real opportunity for the investor or end user to be counter cyclical and make an investment before the market once again moves forward.

Trends

Prime Central London Property in numbers
£773m total value of sales in Q3 2015
373,000 sq ft of property sold in Q3 2015
£1,832 average price per sq ft in Q3 2015
3.7% annual growth in rents in prime central London
1.23m total square footage of properties let over Q3 2015
*Figures and chart supplied by LonRes – http://lonres.com/public/

Recent Events

May 2016STEP Tax, Trusts & Estates Conference, London

March 2016Private Banking Asia conference, Singapore on the 2nd & 3rd of March.

February 2016ARLA Conference, Lancaster Hotel, London.

January 2016 – Prime Portfolio full page ad campaign in Condé Nast publications. Click t a view.

Step Zurich – Prime Portfolio also took part as sponsor and contributor at Step Zurich in October.

Step Asia 2015 – Prime Portfolio had a large presence at the award-winning STEP Asia Conference in Singapore.

 

 

 

Forthcoming Events

June-July 2016 – STEP Global Conference, Amsterdam.