Towards the end of 2018, there were concerns that the government would announce a 3% stamp duty levy on UK property purchases for overseas buyers. When the Autumn budget arrived, Phillip Hammond instead announced that the UK Government would be holding a consultation in January 2019 on a Stamp Duty Land Tax (SDLT) surcharge of just 1% for non-residents buying residential property in England and Northern Ireland.
In the event that this would be enforced, it could mean a step-change in where global investors look to make their next investment. For serial investors, portfolio growers and overseas investors with long-term UK interests, watching the market will be vital.
So what would the UK SDLT changes mean for overseas investors?
All investors know that markets rise and fall but time and again, the property market has shown proven growth over the long-term. The UK property market is no different and while the 2009 crash saw prices drop, the average property has increased in value to well above original figures in the years since, with prices 67% higher than they were fifteen years ago.
Short-term investors may have to accept a slightly lower initial return from off-plan investments but still earn good returns from a 20% capital growth, notwithstanding higher yields from key locations.
Mid-term and long-term investors aiming for maximum returns with capital growth and rental yields would be looking to avoid any additional SDLT hikes in the upper end of markets such as London. Lower entry points such as Birmingham, the Commuter Belt and emerging markets like Oxfordshire would offer better value in the long run, with lower property values carrying less stamp duty but offering higher yields and the opportunity for a more diverse, robust portfolio.
Investors around the world, regardless of strategy, could also find themselves in an increasingly competitive market. These more affordable destinations will inevitably experience an increased demand for the highest quality developments, demand that wouldn’t necessarily exist before any SDLT rise.
As these areas become more squeezed, it’ll be important for investors to identify key infrastructure investments like HS2, Crossrail and the Heathrow expansion as well as local and regional strategies that signpost future tenant demand in up-and-coming areas.
Assuming the January consultation does result in a SDLT increase, the big winners will be those that retain a strategy based around passive income. Whilst the additional initial investment may be a consideration, the forecasted growth of the UK property market will continue to be attractive for investors. Areas such as Slough in the London Commuter Belt are still forecasting 35% growthover the next two years while regional cores such as Birmingham and Manchester are maintaining excellent rental yields with highs of 10%.
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