The emergency summer budget has got a positive reception by London property developers with foreign investors still interested in the UK capital, property specialist Simon Morris says and explains why.
Foreign investment has always played a significant role in London property development and there are signs that this trend continues to grow.
Chancellor George Osborne announced a raft of measures in the emergency summer budget that could drive property investment in London. This includes raising the inheritance tax threshold by £175,000, which allows couples to pass £1 million, including their home, onto their children and grandchildren, although this will be gradually removed for estates worth £2 million or more. He also announced the launch date of the Help to Buy ISA; 1st December 2015. This is a financial product which provides first time buyers with the chance to receive £3,000 on £12,000 saved in their account.
Simon Morris comments: “The amount of multimillion pound properties in the UK capital, especially its prime central district, means London property development could also benefit from the budget’s inheritance tax changes. The current climate provides developers with more incentive to enter London’s already lucrative upmarket residential property sector”.
“The Conservatives also have a chance to implement a range of property policies that will benefit London property developers. This includes Cameron’s pledge to build over 200,000 more homes by 2020, which was voted the best property policy proposal of the 2015 election cycle by 45 per cent of estate agents in a National Association of Estate Agents poll.
“We have already seen this with the announcement of the launch date of the Help to Buy ISA; a measure which will persuade more first time buyers to enter the UK’s most populous residential property market, injecting fresh capital into the sector.”
Morris warned though, that there are risks to London property development, adding that “it is expensive to develop property in the UK’s capital city and the development costs are rising rapidly.”
A report from Halifax bank shows that the ten most expensive areas to buy property in the UK are all in London. Furthermore, one of the Office For National Statistics’ latest House Price Indexes said that the average London house price only increased 4.3 per cent in the year to April 2015; a fall from 11.2 per cent in the year to March 2015.
“The summer budget also posed a new challenge for buy-to-let landlords in London. They already have to pay out significant costs to buy and maintain a residential property in the UK capital. The capping of buy-to-let mortgage relief, along with the end of the ‘wear and tear’ tax deduction policy, could inflate these costs,” Morris says.
“Figures from mortgage lender Paragon show that 19 per cent of all homes in the UK are privately rented. Landlords will pass these new costs imposed by the budget onto their tenants which will increase rents that are already at record rates across London, possibly restricting property development in the UK capital.
“If an investor is looking to enter the London property development sector, they should take these factors into account and calculate risk vs. reward. Can they generate a healthy return from their initial outlay and investment? Are there any alternative property investment vehicles which may provide better returns? For smaller property investors property bonds and funds can be lucrative, particularly when used within an ISA wrapper like the Help to Buy ISA; a strategy which provides certain tax advantages. Some products even guarantee initial investment.
“Whatever strategy they choose, I would advise investors to choose UK regulated investment products and seek as much independent advice as they can before they invest. This will allow them to make an informed decision so that they have best chance of generating strong returns,” he concludes.
