Overseas investors expected to snap up UK property before stamp duty hike
The proposed 1% increase in stamp duty for foreign buyers is expected to see a rise in UK property transactions ahead of the January consultation.
The recently announced UK Autumn Budget 2018 detailed many economic changes that will affect residents and non-residents alike, including confirming a minor increase in stamp duty for overseas property buyers.
The proposed 1% surcharge on residential properties in England and Northern Ireland is still subject to a consultation in January that may see it overruled. Nevertheless, real estate services expect to see an influx of property transactions in the next few months as investors seek to secure cheaper prices ahead of the decision.
Chancellor Philip Hammond announced the additional 1% tax for foreign buyers on Monday in the House of Commons. While this proposed increase has proven unpopular with investors and in the property markets, it is lower than many feared. Prime Minister Theresa May previously discussed increasing stamp duty by as much as 3%, with money raised from the levy helping to tackle the homeless situation.
If the proposed change comes into effect, overseas property buyers will have to pay an extra 1% when buying property in the UK. This is in addition to existing stamp duties that already apply to certain types of property transactions, including a 3% surcharge when buying a second home and up to 15% taxes in the high end of the market.
The decision to target overseas buyers specifically has been met negatively by those who feel it sends the wrong signals in the current political climate and penalizes foreign investment, which has helped to support the UK economy through uncertain times in the aftermath of the divisive Brexit referendum. There are also concerns that this may deter global businesses and international students from considering the UK over other regions.
Earlier this year, research by Jones Lang LaSalle (JLL) found that more than half of UK residential property investment now originates overseas, with China and Hong Kong being among the fastest growing investment markets. The prime real estate markets are dominated by foreign buyers who already have to contend with steep property taxes and may now face an additional surcharge. The revenue raised from taxing overseas property transactions may be negated if UK property investment becomes a less attractive prospect as a result.
Still time to act
Delaying the consultation until January is giving foreign buyers time to research UK property investments and to secure the best deals at current prices. With property values set to soar in the next few years, and extensive development activity taking place in London and other cities, forward purchase arrangements are already the norm in the UK residential markets. These account for the majority of transactions as investors secure prices at current levels and look forward to the anticipated gains.
The impending arrival of the Crossrail Elizabeth Line is also continuing to boost property prices across London and South-East England ahead of its roll-out in December 2018 and through 2019. Some neighborhoods around Crossrail stations are seeing double-digit price growth, with rental prices expected to increase considerably after the service begins operation.
Prime Central London residential markets have also seen a resurgence of growth in 2018 after a year of falling prices post-referendum, with JLL forecasting prime London house prices to grow by 8.7 percent by 2022. With extensive regeneration continuing to create brand new prime real estate across the capital in locations such as Canary Wharf and Nine Elms, and other major cities such as Manchester also projected for significant growth, there may never be a better time to invest in UK property than now.