The real estate industry has warned that the increase in stamp duty could deter investment in the UK’s build-to-rent sector, which currently has over 40,000 new units in the development pipeline.
Based on typical rental yields for a 10 to 15 year investment on build-to-rent, the British Property Federation estimates that the tax will be equate to losing a year’s income, and that investors will be reappraising possible investments as a result of the change.
The build-to-rent sector has attracted over £4 billion investment since the start of the year and is seen as a solution to filling the gap in affordable supply. However, there has been criticism that it has not received enough support from the government.
The government had indicated that it would not apply the new 3% stamp duty surcharge to institutional purchases, but decided to do so in the Budget. In contrast, the Scottish Government has decided to exempt institutional transactions.
Ian Fletcher, director of policy at the British Property Federation, said: “Many institutional investors will find it difficult to fathom why something so good – adding to housing supply – is taxed so highly. Given that in many cases the tax will equate to a loss of a year’s worth on income, it is unsurprising that many investors are thinking twice about entering the sector.
“As well as the direct financial impact, what we cannot also afford is for this to knock the sector’s confidence when there are so many units coming out of the ground and the potential for many more.”
