Overseas investors to conclude real estate deals before stamp duty change

Hamilton International Estates Overseas investors to conclude real estate deals before stamp duty change

08 Nov 2018

The UK autumn budget 2018 announced a proposal to increase surcharge on residential properties – that will be further be revised in January. Some foreign investors are finalizing deals before the implementation of new regulations and tax hikes on properties in England and Northern Ireland. Earlier, it was assumed the duties will increase by 3 per cent, but, the proposed rate is lower as compared to previous expectations. Further, this has been taken as a controversial decision, at the time, when the market is already facing a number of issues.   

This year most buying was need based and highest number of transactions took place in small and midsized homes that included a number of first time buyers. The reason for the increase in sale of small homes is that there exists a severe shortage of large-sized affordable homes in the country.

Stamp duty implications

The stamp duty is given on total value of the home, on the completion of a transaction. It was introduced on 1st April 2016 and appears as a barrier to the buyers, especially, those who already own one. Approximately, 3 per cent of the tax applies, in case of first time ownership, even in conditions of inheritance, or, having an interest in a trust that owns it. It even applies to properties bought outside the country.  

In 2017, first time buyers were relived from the duties for transaction below £500,000, but if the buyer already owns a property, or inherits one, he is liable to pay.

Foreign investors buying before tax policy changes

The rise in tax will increase oversea buyers’ operation costs in the region and this can be negative for the realty sector, the political and economic situation. It is also worried that it will reduce the inflow of overseas students into the country. However, a number of Asia based investors bought, or are concluding transactions, before the new taxes are approved. In the last few weeks some of the wealthy buyers spent approximately £400 millions in central London, notwithstanding, there is an indication of slowdown in the market.

The overseas transactions included the £105 million penthouse apartment and flat, which were historically US embassy and Canadian High commission, and were bought by Chinese buyers.   Similar property was sold for £50 million - the penthouse overlooking the Queen’s Buckingham Palace to Chinese buyers.

Scope for properties to grow in 2019

The average house price growth in UK may have reached the lowest since May 2013 but the outlook is still highly positive. The Nationwide figures find the year-on-year growth was 1.6 per cent, where there exists a high scope for price gain, and activities to pick up in 2019 post Brexit. Such indications are supported by the Savills forecast that predicts the price will increase 14.8 per cent in the next five years.

Modest growth is expected in the South East and East of England in the range of 2 per cent in London, whereas, North West and East midland prices are expected to grow at an annual rate of 3 per cent  and West Midland , Scotland and Yorkshire rate is expected to be in the range of 2.5 per cent.  

To know more about UK properties, click Hamilton International Estates (www.hamiltoninternationalestates.com).


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