Published by Gbaf News
Posted on January 17, 2020
By Jamie Johnson, CEO, FJP Investment
Jamie Johnson
The common consensus is that the December 2019 election result will be good news for the UK property market. Namely due to the fact that it means Brexit is more likely to go ahead on the 31st of January, dispelling some of the uncertainty that has blighted the sector over recent years.
On announcing its expectations to achieve healthier-than-forecast profits in the current financial year, FTSE 250 property firm Savills stated that Brexit and political uncertainty had “suppressed market activity” across both the commercial and residential sectors in 2019. But it then added: “The clear outcome of the general election prompted a strong close to the year as confidence to transact returned to the market.”
However, to say that a resolution to Brexit will give the property sector the shot in the arm it requires heading in 2020 would be to greatly oversimplify matters. After all, there are numerous pressing issues that people – renters, buyers, sellers, investors and developers – need to see addressed by the new government over the coming 12 months, and these extend well beyond the UK’s future relationship with the EU.
We start 2020 with the same priority that has dominated the housing agenda for decades: the UK needs more homes.
The Government has, unsurprisingly, been quick to promise just that. The Conservative Party has said it is committed to building 300,000 new homes every year by the mid-2020s. Moreover, it has set a target of adding one million new-builds to the country’s housing stock by the end of the current parliament (2025).
Onlookers will take such promises with a rather hefty pinch of salt, given the frequency with which we have seen targets like these set and missed before.
Nevertheless, when the Spring Budget rolls around on 11 March 2020, it is of vital importance that the Chancellor throws some financial weight behind his party’s promises; spending commitments must be made to reignite house-building across the UK, particularly in the regional hubs that are experiencing the highest levels of demand.
Of course, it is not the Government who will actually be developing the new-builds. As such, they must do more in 2020 to support developers, from large construction firms down to small local housebuilders.
This support can come in many forms. For one, as stated, the Government can contribute capital towards projects, ensuring the funding is there to kickstart developments. But it can also help by reviewing planning permission regulations.
Freeing up hitherto unavailable land or enabling developers to convert derelict sites are examples of potential reforms.
Furthermore, tax cuts for residential property developers or even findings ways to incentivise private sector investment into residential developments – through channels such as development finance – could also prove worthwhile.
Boosting the number of properties available on the market is one thing. The flip side to the same equation is how can the Government keep a firm handle on the levels of demand for housing.
One way is to control the buy-to-let (BTL) market, ensuring that not too large a proportion of the housing stock is consumed by investors. And this is something that Westminster has certainly turned its attention to over the past decade.
Since 2010, landlords have had to pay more tax and abide by more regulation, which has dampened appetite for this type of property investment. In fact, a recent survey of landlords found that 26% are planning to sell at least one property in 2020, while 82% said they are not planning on buying any more properties. The top reasons landlords gave for wanting to sell are tax increases and government reform.
Scaring property investors away from purchasing real estate will not solve the housing crisis, so it is important the Government does not push matters to an unreasonable degree. But in resetting the balance in the BTL market, it will help control the high levels of buyer demand we generally see for residential property.
Stamp duty represents another area of potential change in 2020. Indeed, the new government is proposing a stamp duty surcharge of 3% for non-UK residents who are buying a UK property.
While this reform may not act as a huge deterrent – UK stamp duty rates would still rank below many other global property investment hotspots – it still underlines the Government’s attempts to curtail demand to ensure more first-time buyers can access available properties. The investors, meanwhile, may turn their attention to other methods of investing in the real estate sector, such development finance and debt investment.
But further stamp duty reforms have been touted. It could, for example, be scrapped all together for first-time buyers. Alternatively, the stamp duty could be shifted for all buyers, impacting the amount that is paid and at what price.
More radical still, there have even been slightly more far-flung rumours that stamp duty could be dramatically changed. It could be made payable by the seller rather than the buyer, or it could be replaced by the US model of an annual tax based on the market value of the property.
Though these changes are unlikely, stamp duty reform in some sense does not seem too far away. With that said, all eyes turn to March’s Budget.
Ultimately, one of the themes that has hopefully become apparent throughout the four other points listed above is the need for the Government to be creative.
Small incremental changes in the ways previous governments have done will likely leave us in a largely similar position at the end of 2020 as we start it. Boris Johnson and his party cannot only look to minor reforms, tax revisions or loose spending commitments if we are to see more houses built, more people get on and move up the property ladders, and a more level playing field in the world of bricks and mortar.
Once the Brexit deadline passes, one must hope that the Government can turn its attention to pressing domestic issues, with the property sector one such example. It remains a bedrock of the UK economy as well as a hugely attractive market for both domestic and international buyers – neither of these things can be taken for granted but must instead be nurtured over the coming years.
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