Trade Tuesday: Property special – is protectionism waiting in the wings?
Co-written by Debbie Standen & Roy Turner
Theoretically there is a free market in real estate in the UK. But real estate is not just an asset. Land and buildings make up a nation’s fabric, ranging from people’s homes, to offices, pubs, warehouses, and everything else in between. This makes real estate assets political, and the asset class that is the most emotive and contentious of all is residential property. After all it encompasses our homes.
It becomes even more of a thorny subject when international money comes into the mix.
It’s clear the UK has a homes crisis; a mismatch between supply and demand resulting in soaring prices and rents, placing residential property and, in particular, overseas buyers in the political spotlight.
It’s not just the UK. Canada drew its line on the issue earlier this year, banning the purchase of residential property for non-Canadians or foreign corporations for two years. They join a host of other countries with measures to deter foreign ownership including Denmark, Malta and Singapore.
Other territories have followed a similar path to the UK, bringing in cooling measures in response to increasing supply and affordability concerns. Singapore, New York and Hong Kong impose a hefty tax levy on non-domestic purchasers, the former hitting headlines last month with a 60% stamp duty – the highest in the world. Meanwhile, the likes of Portugal and Ireland are bringing to a close their ‘Golden Visa’ schemes; initiatives originally designed to encourage international investment into the country, offering residential/citizenship status in return. However, in the case of Portugal, some developers have reported the removal of the ‘Golden Visa’ has had little effect on property sales.
With the General Election on the horizon, the subject is key matter of debate and Labour leader, Sir Keir Starmer, has hoisted the flag for would-be first-time buyers. As well as suggested measures to increase the supply of homes, he has proposed further ramping up Stamp Duty Land Tax (SDLT) for overseas buyers. This is on top of the 2% surcharge added by the current Conservative government to SDLT for overseas buyers.
While the negative effects of international property buyers dominate headlines and political rhetoric it is easy to overlook its positive contributions to the UK as a world class country and, in some cases crucial role in housing provision particularly in new build development and regeneration.
Major regeneration is decades in the making, often with a multimillion investment going into site remediation and infrastructure years before a spade goes into the ground on any new homes. Meanwhile, the UK lending system does not take a similarly long view. Mortgage offers are valid for just six months. Being how most British homebuyers currently finance the purchase of a home at 70% (98% among first time buyers), it remains untenable for a significant proportion of domestic UK buyers to make such a commitment some two, three years out, plus.
Buyers from overseas territories with longer term debt financing options, or alternative financing means, are crucial to building the forward order book and ensuring the viability of these regeneration schemes. And will remain so until the UK lending system is updated to reflect the market. The likes of the Homebuilders Federation and PwC are among many to stress this point in response to Keir Starmer’s proposals.
An international market also makes way for world-class talent, business and entrepreneurship, not to mention a celebrated diversity of population and cultures.
Although politicians might be tempted to take the populist route with a simplistic ban on overseas property buyers a far more nuanced approach is needed. Recent news about falling off-plan sales, which are essential for developers to finance their developments, make sobering reading. An analysis by Hamptons, the estate agency, shows 34 per cent of new homes in England and Wales were sold off-plan last year, down from a peak of 46 per cent in 2016 and the lowest level since 2013. This has prompted experts to predict a future funding crunch.
Although it might be tempting for governments to restrict purchases of homes from overseas buyers, is this the best approach to boost affordability? Any policy decision needs careful research to assess both the negative and positive impacts and strike a careful balance between remaining a country that welcomes global talent, business and investment and protecting the quality of life and opportunities for its incumbent citizens.