Having a plan B
Speakers: Liam Bailey, Global Head of Research, Knight Frank, Yolande Barnes, Head of Savills World Research, Savills, Henry Stuart Wither LLP
Q:Will there be a ‘mansion tax’?
A: Liam Bailey, Knight Frank: Never say never – if we define a mansion tax in a broad way – so an new or increased annual charge on property – then this is entirely possible.
Yolande Barnes, Savills: In the UK, the introduction of the higher rate stamp duty probably headed off the threat of a new Mansion Tax per se but property taxes will increasingly rise to the fore. One possibility is growing calls for CGT on main residences (particularly from non home owning younger generations) the other, especially possible in the event of a socialist government, is a more root and branch reform of council tax and other property taxes which might consist of a land tax (particularly favoured by the acolytes of Henry George). A 1% or 2% annual charge on the current value or land value (Value less build costs) of a home or other property. This would more likely be seen as a more progressive tax than council tax and could be seen as a good alternative to business rates for commercial properties as well.
Q: Has London’s attractiveness as a global city been damaged in the last 10 years by over development of tall buildings?
A: Liam Bailey, Knight Frank: No. Paris is far more beautiful than London and controls building heights much more strictly but lags so far behind London as a global city.
Yolande Barnes, Savills: Possibly. It is not the height of buildings that is the problem but a denuded streetscape and homogeneous urban environment which often accompanies new apartment development – of any height – which is the problem. If the result is a lack of ‘London-like’ neighbourhoods, this will devalue some areas over time. There are still plenty of great neighbourhoods though which will remain attractive but if London can’t create more of them around suburban transport nodes it will fail to grow and could end up like Paris where the desirable urban centre is surrounded by sub-optimal suburbs acting as a barrier to growth.
Q: Which cities will be in the next wave of the growth boom?
A: Liam Bailey, Knight Frank: Frankfurt, Madrid, Barcelona
Yolande Barnes, Savills: Bristol, Manchester, Glasgow, Amsterdam, Berlin, Madrid, Cape Town, Shenzhen, Jakarta
Q: Can London continue to attract foreign investors in light of Brexit and tougher disclosures on source of funds?
A: Liam Bailey, Knight Frank: Yes, Brexit has had no impact at all on inward investment into commercial property – and the slow down in the residential market is more to do with tax. The shift to more disclosure will happen in all developed world economies over time
Yolande Barnes, Savills: It can – but everything remains uncertain until the end of the transition period – which may be more than a decade away. I agree with Liam that money laundering will be under increasing scrutiny globally.
Q: Many European residents have a very different approach to renting and owning property in their own cities when compared to the British ‘I must own my home’ ethos. Have you seen, or could we see, a change in approach in London, other than just based on an affordability (necessity) basis.
A: Liam Bailey, Knight Frank: Knight Frank’s annual tenant survey confirms that while for most tenants it is a needs must decision which explains them living in rental accommodation – however there is some evidence that the attraction of owning has diminished for other reasons (flexibility, simplicity etc) as well.
Yolande Barnes, Savills: The incidence of home ownership has been rising in other European countries so the UK now has a lower incidence than the EU average. Even in big renting economies, most people would usually aspire to eventually owning their own home – just at an older age. If this prospect is removed for a large number of people, political and social unrest will follow.
Q: How does the panel feel Brexit could impact London as a leading financial centre?
A: Yolande Barnes, Savills: The evidence so far suggests that the impact will be relatively minimal from Brexit itself – the real issue is the role that the U.K. government will play through tax and regulation to support the financial and business services cluster in London
Q: Are we underestimating the trickle down effect of a whole swathe of super prime London being owned with unexplained wealth?
A: Yolande Barnes, Savills: This tiny and rarefied market is beset by myths which bear no semblance to reality but are much loved by politicians of all ilk’s because it is easy to act on such a small number of people and properties without any (electoral) consequences and it can be made to look as if something is being done about the housing crisis. I would expect all sorts of political and other pressures being brought to bear on this – to the detriment of other inward investments in London and the UK. But unfortunately this will have no effect on homelessness as it wont increase supply in the mid market and could decrease the supply of affordable housing which is provided with up-market schemes.
Q: U.S. property taxes can be penal : for example in Long Island. What are the chances of a new band of council tax here in the U.K. ?
A: Yolande Barnes, Savills: Possibly additional council tax bands will be introduced as an alternative to mansion tax or other property taxes. This wouldn’t be like N American Mansion Taxes.
Q: What impact do you think there would be on the London commercial property market if U.K. IHT was introduced for all UK commercial property, regardless of ownership structure.
A: Yolande Barnes, Savills: Most London commercial property is corporately owned so IHT would not be an issue for London as a whole. Individuals might end up selling to organisations unaffected by IHT.
Q: To pick up on Henry’s remarks re SDLT: I live in central London, I walk past 5 new developments on the way to the tube. All are marketed as Luxury 2-3 bedroom apartments. Can the government do more to make these developments accessible to ‘us Brits’ or do you think that nothing more will be done?
A: Henry Stuart, Withers: In February of this year the Mayor of London announced plans to give locals and UK-based homebuyers the first chance to purchase. New-build homes worth up to £350,000 will be offered for sale to Londoners and UK-based bUyers for the first three months when they arrive on the market. It is expected that the scheme will start this summer. This follows research commissioned by the Mayor’s Office found that half of new build propertied bought by overseas buyers in London were homes under £500,000.
In May 2017 the LSE published a report on ‘The role of overseas investors in the London new-build residential market’. This found that certain international estate agents between April 2014 and 2015 a third of sales were to overseas buyers rising to over 50% in Central London (where the number of new units is small). Research by York University suggest that around 13% of the new market housing was sold to overseas residents across London as a whole in the same period. The proportion of new units sold to buyers resident overseas declines with the distance from the centre. 70% of buyers said that the homes were solely for investment.
Developers estimate occupancy rates for individual schemes were up to 95% and that there is almost no evidence of units being left entirely empty. Developers say that they need pre-sales to ensure a pipeline of development. Off-plan sales are often to overseas buyers as this was more usual and many were not constrained by mortgage offers.
Q: Will we see changes in SDLT rates?
A: Yolande Barnes, Savills: Unlikely, given the dampening effect already experienced as a result of the last round of hikes.