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Buy to Let Bombshell
Our round up of this week’s property news leads with the buy to let bombshell from George Osborne who announced an extra 3% stamp duty on additional properties. Read this and more in our summary below.
Buy to Let Bombshell
In his autumn statement on Wednesday George Osborne delivered a buy to let bombshell when he announced that from April 2016 an extra 3% stamp duty will be levied on the purchase of additional properties, including second homes.
The surprise move which left many buy-to-let landlords reeling is, claimed Osborne, aimed at ensuring that buy-to-let landlords do not squeeze out first-time buyers from the housing market. It is also expected to raise £1bn in extra tax income by 2021, which would be spent on “local communities in London and places like Cornwall which are being priced out of home ownership”.
The move will see the rate of stamp duty charged on a £250,000 property jump from £2,500 to £10,000, although there is expected to be an exemption for institutionally-backed investors in order not to stifle the development of the burgeoning private rented sector (PRS).
Melanie Leech, chief executive of the British Property Federation, welcomed that exemption, but said the new levy would hit small landlords and, following on from recent changes to mortgage interest relief, “creates a very negative climate towards the small investor”.
“As stamp duty tends to be figured into the purchase price of homes, we could also find that the change is harmful to homeowners trying to move up the housing ladder, as prospective investors will be fewer in number and will seek to pay less,” she added.
Robert Bartlett, Chestertons chief executive, warned the move, on top of the increases in stamp duty at the top end of the market he announced a year ago, could back fire. He said the stamp duty hike had cost the Treasury around £750m in lost revenue this year alone due to its negative impact on sales at the top end of the market.
Bartlett added that the £1bn Osborne claimed would be raised by the new buy-to-let levy would be “obliterated by the losses over that same period”. “The chancellor is burying his head in the sand and will likely be in for a shock when the final year’s receipts are counted and he realises how much the new regime is costing the Treasury,” he said.
Adrian Leavey, real estate partner at law firm Trowers & Hamlins, said landlords would simply increase rents in anticipation of the new levy. “Is the additional stamp duty set to be just a short-term tax yield that will simply be priced into increased rents? If it is, we could end up seeing a further squeeze on affordability in an already undersupplied market,” he said.
David Cox, Association of Residential Letting Agent managing director, said the move was “catastrophic”.
“To make owning a BTL property financially viable, landlords will need to pass on the increased stamp-duty costs to tenants, who will in turn see less spent on maintaining their property and of course see increased rents,” he said.
“The changes will also deter new landlords from entering the market, pushing the gap between dwindling supply of available property and growing demand even further apart, which will also – in turn – push up rental costs.
“London, where demand is so strong and last year’s stamp duty changes hurt, rather than helped, will see tenants having the greatest burden to bear.”
Many experts take the view that although the extra tax may put off some individual landlords it is unlikely to deter the vast swathes of professional investors looking for long term investments. It was also pointed out that the change doesn’t make prices any more affordable for first time buyers.
One piece of good news for landlords is that when it comes to selling up they can continue to offset purchase costs (including stamp duty) against any eventual capital gains tax (CGT). So provided they make a profit when they sell they can then claim the stamp duty back against CGT.
Other measures announced in the autumn statement included:
A £6.9 billion housebuilding drive, described as “the biggest housebuilding programme since the 1970s” in a bid to tackle the “crisis in home ownership” in Britain. The Chancellor committed to the building of more than 400,000 new homes throughout England. The £6.9bn programme will see the government back a range of schemes to help people buy their own homes in what is seen as a switch from support for rented housing to home ownership.
The plans include some £2.3bn paid to developers to build “starter homes” for first time buyers, who will receive a 20% discount on prices up to £450,000 in London and £250,000 in the regions.
Another £4bn will be allocated to developers, housing associations and local authorities to build 135,000 shared ownership homes for households earning less than £80,000 (£90,000 in London). There will also be £200m for 10,000 new homes that tenants can live in for five years as they save for a deposit and £400m to build 8,000 homes for the elderly and disabled.
A new “turbo charged” Help to Buy Scheme for London Buyers through which the government will provide equity loans to cover up to 40% of the price of homes in London. Under the scheme buyers must contribute at least 5% of the property price as a deposit – the government will then provide an equity loan for up to 40% of the price with buyers covering the remaining 55% through a mortgage.
The chancellor also confirmed plans to roll-out the starter homes initiative, with first-time buyers able to get a 20% discount. He said £2.3bn would be spent on building 200,000 such homes over the next five years.
Councils to keep 100% of money. Local councils will be able to keep 100% of the receipts from assets they sell, including property, to spend on improving services in their area in addition. Osborne said: “Local government is sitting on property worth quarter of a trillion pounds. So we’re going to let councils spend 100% of the receipts from the assets they sell to improve their local services.
“Councils increased their reserves by nearly £10bn over the last parliament. We’ll encourage them to draw on these reserves as they undertake reforms. This amounts to a big package of new powers, but also new responsibilities for local councils.
“It’s a revolution in the way we govern this country. And if you take into account both the fall in grant and the rise in council incomes, it means that by the end of this Parliament local government will be spending the same in cash terms as it does today.”
Optimism from House Builder
Countryside has recorded a 93% year-on-year increase in operating profit in its latest annual results as its operating profit rise to £91.2m from £47.1m in 2014.
Revenue at the developer rose 31% year-on-year, from £468.7m to £615.8m, while return on capital employed rose to 24.7% compared to 15.6% last year.
Annual completions were up 16% to 2,364 compared to 2,044 in 2014. Private average selling prices rose by 16.8% to £385,000.
Countryside said it was “well on track” to meet its medium term growth ambitions of 3,600 completions a year, an operating margin of more than 17% and ROCE over 28%.
The company has also increased its land bank to 26,213 plots, of which 14,648 have planning permissions attached.
Ian Sutcliffe, group chief executive at Countryside, said: “We are delighted to have continued to deliver our operational and financial objectives.
“We have focused on delivering strong top line and bottom line growth, while maintaining our capital discipline, to give a significant improvement in operating profit, margin and ROCE.
“Both our house building and partnerships divisions have performed very well and have excellent visibility to deliver further industry leading growth.”
Medium Sized Developments struggle to secure Finance
In a new report CBRE (the commercial property and real estate services adviser) reveal that although the bigger developers have good access to bank debt and a growing number of specialist lenders are looking to back smaller-sized projects it is particularly hard to secure finance for developments in the £20m to £100m range.
Commenting on the report Andrew Antoniades, director of CBRE said “The people in the middle have the fewest options. They are too big for many of the smaller lenders but not big enough to be attractive for the banks, especially if the developer doesn’t have a perfect track record. ” He went on to predict that competition in the investment lending market will ensure a “selective and steady” increase in funding for the strongest schemes whilst securing financing is likely to remain challenging for others.
Ankor Property Group is developing a student block near South Ealing tube station in London that it plans to sell in individual units to small investors. The company bought the former office site for £8.25m and has planning consent to turn it into a student development of 77 studios, with a gross development value of more than £21m.
Unusually, instead of looking to sell the scheme to a single investor, Ankor is selling individual units, providing an assured return of 5% a year over five years. Before Ankor completed the purchase, it had exchanged options on 10 studios at between £200,000 and £300,000 per unit.
Jamie Ludlow, Ankor’s head of investment, said the approach gave small investors an opportunity to tap into London’s fast-growing student market.
“In south Ealing, there is only one other purpose-built block nearby and the University of West London is having to send students to Unite’s Kendrick Hall in Reading, which is a long way from Ealing,” he said.
Work is due to start in the new year for occupation in September 2017.
A new joint venture between developer Osborne and Student Residence Investments has purchased a site for a £20m student accommodation development on a brownfield site in Winchester with planning permission for 237 student accommodation bedrooms. Osborne, which is currently developing accommodation schemes at Roehampton and Reading universities, aim to start construction early in 2016, with completion due in September 2017.
A flint-clad house designed for Lord Rothschild that resembles an Aztec temple has won this year’s coveted Royal Institute of British Architects (RIBA) House of the Year award. Revealed by Grand Designs presenter Kevin McCloud as part of a special four-part TV series on Channel 4, Flint House was designed by architects Skene Catling De La Pena and is set in the flint-layered fields at the Rothschild estate in Waddesdon, Buckinghamshire with views over the breathtaking local landscape . The property is inspired by the seam of flint it sits on and the surrounding ploughed chalk fields. McCloud was impressed with the boldness of the exterior design, and the flexibility of the modern interior frames. The full shortlist for the award also included several ingenious homes, from a property tucked behind a 19th-century stable wall in Kew, to a family house built on the walled site of a former taxi garage that has six roofs joined to form vaults.
A £3.5 million Georgian townhouse collapsed “like a pack of cards” this week as builders carried out a significant basement conversion. The house in Barnes South West London which belongs to David Kasslar, the former chief executive of Phones4U was having its basement enlarged to accommodate a cinema, gym and wine room when an outer wall and two storeys suddenly collapsed into the street. In what builders described as a “minor miracle” nobody was hurt – Richmond council are now overseeing work to ensure that the building is made safe before the full extent and consequences of the damage can be assessed.’
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