26 October 2016
The additional stamp duty is a small fraction of the growth in British property prices over the last two decades. Photo: Bloomberg
The additional stamp duty is a small fraction of the growth in British property prices over the last two decades. Photo: Bloomberg

British stamp duty changes should not deter property investors

Last week’s autumn statement and spending review from British Chancellor of the Exchequer George Osborne brought an unexpected increase in stamp duty for buy-to-lease investors.

Osborne also announced several policies aimed at stimulating demand from first-time buyers, increasing investment in housebuilding, and freeing up the huge undersupply of housing that exists in the country.

From April 1 next year, a new stamp duty land tax (SDLT) will be charged on second homes and buy-to-lease investments valued at over 40,000 pounds (US$60,300) in England and Wales.

Investors will have to pay a 3 percent surcharge on top of the existing progressive stamp duty.

Here’s how the new tax will affect investments of between 200,000 pounds and 800,000 pounds (see table at the end of the article).

These changes are underpinned by a goal to support the long-term health and stability of Britain’s housing market.

They not only show the government’s commitment to increasing supply for hopeful owners of first homes but also mean that further growth of this lucrative market will be sustainable.

For overseas investors, policy changes like these can be perplexing, and buyers from China and Hong Kong are right to consider how this affects Britain’s attractiveness as a property investment destination.

In our view, however, the fundamentals remain strong.

In fact, this surcharge ensures that only those who can sensibly afford to buy to lease will be making these investments.

Investors with experience in other buy-to-lease markets will know that Britain’s stamp duty rates are not too high from a global perspective – Berlin charges 6 percent and Australia 4-5 percent.

A higher rate in Britain just reinforces the market so that only credible and reliable borrowers are taking part.

Furthermore, the additional stamp duty should be put into perspective.

An analysis of historical property price growth across England and Wales over the last 20 years (211 percent growth) provides a useful context to measure the potential impact of this new surcharge.

In London, where property prices have climbed 82 percent over the last decade and 446 percent over 20 years, this additional 3 percent becomes even less significant.

Even in undervalued Manchester and Birmingham, past performance reinforces the significant price growth forecast in these markets.

Moreover, although interest rates will begin to rise soon, they are likely to stay low for some time.

An ongoing period of low interest rates will continue to drive investor appetite, and sustainable growth will be the result.

The Chancellor is putting these measures in place with the explicit purpose of maintaining stable growth across the country’s housing market – in recognition of the fact that interest rates, a more conventional calming mechanism, are likely to remain low.

What’s more, we can be certain that Britain’s endemic supply-demand imbalance will remain for a long while despite measures to stimulate housebuilding, further supporting sustainable growth for investors over the long term.

The chronic imbalance established over decades will not be eradicated overnight, and this will continue to support favorable conditions for overseas investment.

While these stamp duty changes are not good news for property investors with a short-term exit strategy, we believe that plans to improve the stability of the national housing market are very much in the interest of longer-term investors.

Investors from China and Hong Kong should think long term about their property acquisitions – and we can be very confident that, if such an investment strategy is implemented, Britain can remain a very fruitful market for investors for the foreseeable future.

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New stamp duty land tax (SDLT) for investments priced between 200,000 pounds and 800,000 pounds

Distribution Director, IP Global Ltd

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