Investors have the option of purchasing property as an individual or via an investment vehicle, such as through a company. Different taxes apply at different stages of owning a property — when you buy it, whilst you own it, and when you dispose of it.
In Part 1, we covered the taxes that are applicable at the purchase stage of the investment. Part 2 covered the next stage of investment, ie when you have already taken possession of the property. Here in Part 3, we talk about what entails when you dispose of your UK property.
Capital Gains Tax (CGT)
When you sell your home, you may need to pay Capital Gains Tax (CGT) on any gains you make when you dispose of your property.
CGT is currently only applicable to residential property. Commercial property such as student property and care homes will be subject to CGT from April 2019.
Your taxable gain is the difference in price between the purchase and sale of your property, after taking away any allowable expenses and your personal allowance (if selling as an individual).
SELLING AS AN INDIVIDUAL
All non-UK residents get an annual personal allowance of £11,700 for CGT.
Allowable expenses include the stamp duty paid upon the purchase of the property, agent fees and legal fees incurred during the purchase or sale, and payments for valuations made on the property.
CGT is taxed at 18% if your taxable gain is £46,350 or less, or 28% if more:
Jason sold his apartment for £275,000. He had previously bought it for £200,000, giving him a total cash gain of £75,000.
Jason must report the sale to HMRC, complete a full CGT computation and pay any CGT within 30 days of transfer.
Jason’s expenses come up to £30,400, and after deducting his personal allowance, he has a total taxable gain of £32,900.
Jason’s taxable gain is less than £46,350, so his CGT rate is 18%, and this will come up to a tax of £5,922, or 2.15% of the apartment’s sale price.
SELLING THROUGH A COMPANY
INHERITANCE TAX Leaving your property to your heirs
If you are leaving your house to your heirs, you may want to take note of the taxes involved in bequeathing it.
Inheritance Tax will need to be paid on any UK assets you pass on. Currently the tax is at 40% for any amount above £325,000 per individual (what is called the ‘nil-band’ allowance).
Andrew owns a house worth £350,000, which is his only UK asset. He leaves the house to his son.
The house’s value exceeds the allowance threshold by £25,000, and the Inheritance Tax on that amount would be £10,000.
The tax is paid by Andrew’s son who inherits the house.
You can put estate-planning in place to significantly reduce the tax your heirs will need to pay.
This could be something simple like bringing on a spouse or re-mortgaging your house.
Spouses can inherit their partner’s allowance, effectively doubling their tax-free allowance to £650,000.
Barry owns a house worth £500,000, which is his only UK asset. He leaves the house to his wife.
There is no IHT for passing on the house to a spouse, so Barry’s wife will not pay any tax. However, Barry’s wife also inherits Barry’s allowance.
When Barry’s wife dies, the son inherits the house. Barry and his wife’s joint allowance is £650,000, which is more than the value of the house, and the son will not need to pay any IHT.
An outstanding mortgage can also be tax-deductible against your estate, and will lower the amount of Inheritance Tax charged.
Here are some other ways of estate planning:
Using a trust
Using a UK company
Taking out a life assurance policy not based in the UK
A good tax planner will advise you on your best options, ensuring that your heirs will get the maximum benefit out of what you leave to them.
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If you are interested to explore UK Property’s potential for high returns, or if you need us to refer you to a good tax firm in the UK, don’t hesitate to give us a call at 3163 8343 (Singapore), 03-2162 2260 (Malaysia), or email us at email@example.com!
Disclaimer: This article serves as a guide to investors. Kindly note that CSI Prop is not a licensed tax advisor. Accordingly, you should seek advice based on your particular circumstances from independent advisors and planners.
Manchester recorded a 7.0% increase in house price growth compared to London’s dismal 0.4%.
Manchester is England’s top performing city for house price growth, the latest data from Hometrack shows, while London remains on a flatline.
The data comes from the property research firm’s UK Cities House Price index, which tracks housing data across 20 UK cities and regionally.
For house price growth over the last 12 months, Manchester obtained top spot at a cool 7.0% increase followed by Birmingham at 6.5% and Liverpool at 5.9%.
Price growth in London showed no signs of recovery, staying at a stagnant 0.4%.
Across the UK as a whole, prices have gone up by 4.3% over the last 12 months.
Many cities in the Northwest have posted high capital gains over the average for the last 12 months. Yet, there is still much room for growth, as prices remain low, well under the national average.
The average price in Manchester was at £163,200, Birmingham is at a slightly lower £159,800, and Liverpool, at £118,800.
Comparatively, the average price of a home in Britain is £217,400.
Although price growth in London is stagnant, housing in the capital costs more than double the national average, at a whopping £491,200!
Richard Donnell, Insight Director at Hometrack says that the London market is going through a period of price alignment, having posted some very large gains over the past 8 years.
“Over the last 12 months, average prices in London have grown by just under 1%. This is much lower than the annual average growth of 9% over the last 5 years. These averages mask a wide range of house price growth at a sub market level. Actually, house prices are falling across a third of London’s local authority areas.”
Homes in the capital have become unaffordable for many people after years of surging prices, while wage growth remains meagre and lenders apply tougher mortgage criteria.
However, the price gap between regional cities and the capital is narrowing.
Hometrack expects the gap in prices between London and other UK cities to close further over the next two years. This follows a similar pattern from 2002 to 2005 when London house price growth was relatively weak compared with the rest of the country, after a period of surging prices from 1996 to 2000.
Richard says, “We expect house prices to keep rising across regional cities such as Birmingham, Manchester and Edinburgh over the next two to three years. During this time house price growth in London will remain flat, with annual price rises of approximately 0-2%. As a result, the gap between house prices in cities outside of the south-east and house prices in London will continue to contract.”
Manchester and Birmingham are expected to be the first cities to move closer to London prices, with demand for housing likely to be boosted by strong job growth. They are forecast to return towards average prices being around half of those in the capital compared to a third today.
“The level of house price inflation seen in large regional cities during the last peak, between 2000 and 2003, gives a good indication of how much prices may rise this time around. If history is to repeat itself and these cities are to get back to where they were, then prices could increase by as much as 20-25%,” Richard adds.
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Have you ever wondered if you should invest in property through an investment vehicle, instead of as an individual?
In this three-part series on investment vehicles, we’ll go through the various types of taxes that are applicable when buying property in the UK individually and through a company, so that you can have a better idea of the differences between the two.
Different taxes apply at different stages of owning a property — when you buy it, whilst you own it, and when you sell it.
In Part 1 of 3, we go through the initial stage of owning a property in the UK, which is when you buy one.
The tax involved when you buy a property is called the Stamp Duty Land Tax (SDLT).
Stamp Duty Land Tax (SDLT)
When buying a property, you are required to pay stamp duty to HM Revenue & Customs within 30 days of completion.
Generally, your solicitor, agent or conveyancer will assist with filing and paying the tax on your behalf and adding that amount to their fees. Otherwise, you can file the return and pay the taxes yourself.
BUYING AS AN INDIVIDUAL
If this is your first home purchase, and it costs less than £500,000, you can claim relief as a first-home buyer.
This means that you don’t pay any stamp duty up to £300,000 and only 5% on the portion from £300,001 to £500,000.
If you already own or previously owned a home outside the UK, you can’t claim relief.
If your first home purchase costs more than £500,000, you follow the rules for Single-House Owners.
Single-house owners are those who have previously owned a house before, but have sold it.
This also applies to property outside of the UK.
Single-house owners don’t pay any stamp duty up to £125,000.
You only begin paying stamp duty at various increments from the next £125,000 (the portion from £125,001 to £250,000) onwards.
Any portion above £1.5 million is charged at 12%.
If buying another house means you will own more than one property, higher rates apply, unless the house you are buying is less than £40,000, in which case you pay 0% stamp duty.
Stamp duty rates are higher by 3% across the bands for buyers who already own a home (in or out of the UK).
If you own just one house now, and are planning to buy a new one as a replacement, Multiple-House Owner stamp duty is applicable. However, you can get a refund if you sell the old one within 36 months of purchase.
Buyers of commercial property don’t pay any stamp duty for property price up to £150,000.
You pay stamp duty of 2% for the next £100,000 (the portion from £150,001 to £250,000).
Any portion above £250,000 is charged at 5%.
BUYING THROUGH A COMPANY
The taxes are different if you are buying through a company:
What are your thoughts about buying UK Property through an investment vehicle? Drop us a comment below. If you are interested to explore UK Property’s potential for high returns, don’t hesitate to give us a call at 3163 8343 (Singapore), 03-2162 2260 (Malaysia), or email us at firstname.lastname@example.org!
Disclaimer: This article serves as a guide to investors. Kindly note that CSI Prop is not a licensed tax advisor. Accordingly, you should seek advice based on your particular circumstances from independent advisors and planners.
Evidence has emerged to suggest the ongoing Banking Royal Commission will impact availability of financing for house purchases. However, experts say that this is unlikely to have much effect on house prices in the long term. The real drivers of property prices are land availability, construction costs, population growth, and to a lesser extent finance access and cost
The Australian Banking Royal Commission was established last December, after years of public pressure, to investigate alleged misconduct by Australia’s financial services entities.
So far, proof of appalling behaviour by Australia’s major banks and financial planners from the past decade has surfaced, which include alleged bribery, forgery of documents, the repeated failure to verify customers’ living expenses before approving loans, and selling insurance to people who are unable to afford it.
In the aftermath of the scandals, several high profile finance executives have resigned, while shares of Australia’s major banks have all fallen at least 20% from highs reached before last May’s budget.
Commonwealth Bank, Westpac, and National Australia Bank shares are about 23% below their peak of late April 2017, while ANZ’s stock has fallen 20%.
Even as the Royal Commission goes on, tighter lending standards have already been enforced by the Australian regulator, with some self-imposed, as banks attempt to realign lending practices with responsible lending principles.
What the experts say
There has been concern that as tightening regulations reduce availability of financing, demand for property will follow suit, causing a drop in house prices. Several experts have chimed in on the matter.
JP Morgan’s Australian economics team suggests that the Royal Commission will cause slower credit growth, job losses in the finance sector and slower household consumption, which will lead to declines in house prices in the short term.
While JP Morgan believes the fallout from the Royal Commission creates short term downside risks for the Australian economy, in the long run it will leave Australia’s finance and household sectors, as well as the broader economy, on a stronger footing than is currently the case.
All else being equal, JP Morgan is of the view that this should be positive for the longer-term investment and productivity outlook.
Rachel Ong, Professor of Economics at Curtin University says that the stricter regulations are not likely to impact house prices.
“The tightening of banks’ lending standards and stricter credit controls should lead to a reduction in demand for properties.
“However, this prospect is unlikely to translate into any meaningful reductions in property prices. Property prices in Australia have remained persistently high since the early 2000s,” she says.
Brendan Coates, Fellow from Grattan Institute, says that any short term reduction in house prices is unlikely to have much of an impact.
“Tighter lending standards to reduce the amount of money prospective homebuyers could borrow would push down property prices, at least in the short-term. But the effect is likely to be modest, because banks have already tightened lending criteria in recent years,” he says.
Maria Yanotti, Lecturer of Economics and Finance, from University of Tasmania, is of the opinion that the Royal Commission is more likely to affect the supply of financial services, than demand for loans.
“As a consequence of the commission’s findings we would like to think that financial institutions will have to put in place better compliance processes and stop cost-saving or income-generating practices that disadvantage or put consumers at risk. These new processes and practices will translate into higher costs for the financial institutions, which will be passed on to consumers via higher interest rates and/or lower access to finance.
“This situation will result in lower demand from those looking to own a home, in favour of higher demand for rental housing. But the effect of higher interest rates may not be strong enough to decrease demand for property by real estate investors and businesses.
“The real drivers of property prices are land availability, construction costs, population growth, and to a lesser extent finance access and cost,” she observes.
It seems apparent that falls in property prices are unlikely to make much of an impact, or are merely confined to the short-term, giving a good outlook for investment in Australian property for investors keen to get a bargain whilst capital growth has slowed.
What are your thoughts about the impact of the Banking Royal Commission on property in Australia? Drop us a comment below. If you are interested in Australia and, particularly, Melbourne’s potential for high returns, don’t hesitate to give us a call at 3163 8343 (Singapore), 03-2162 2260 (Malaysia), or email us at email@example.com!
A significant change to the landlord licensing scheme is the exemption of licensing for smaller HMOs. If you are a landlord renting out your premises in the UK to multiple occupants and have been exempt from licensing all this while, you may want to pay attention to the latest changes in legislation.
Since its implementation in the UK some 8 years ago, the landlord licensing scheme has brought changes to the UK housing market, affecting landlords across the country.
Landlord licensing, also known as selective licensing, sets out to ensure that landlords are “fit or proper persons” and that buildings for rent are fit for occupation — all with the intention of raising standards and improve the rental market.
Recently, the UK government released new guidance affecting landlords of houses in multiple occupations (HMOs). The overhaul will take effect on 1 October.
Due to their shared facilities, HMOs often offer cheaper accommodations to students, migrant workers, and young professionals looking for cheaper rental housing.
The new guidance in the landlord licensing scheme is aimed at tackling overcrowding and ensuring all landlords’ properties reach minimum standards.
One of the most significant additions in the landlord licensing scheme is that the previous rules exempting smaller HMOs from licensing, will be removed. Other mandatory changes in selective licensing for HMOs below:
Part 1 of changes – minimum room size
The Mandatory Conditions of Licences 2018 according to Schedule 4 of the Housing Act 2004, introduces new conditions of minimum sleeping room sizes as follows:
Not less than 6.51 square meters for one person over 10 years old;
Not less than 10.22 square meters for two persons over 10 years old;
Not less than 4.64 square meters for children under 10 years old.
Rooms that do not fulfill the minimum requirement are not allowed to be used as sleeping accommodation. Those who abuse the regulations will be charged a penalty of up to £30,000.
Part 2 of changes – waste disposal
The government also set out new guidances related to waste disposal, given that waste generation by HMOs is higher than standard households due to the high number of occupants.
All the above new amendments will take effect in cities in which the landlord licensing scheme applies, for instance, London, Liverpool, Nottingham City, Leicester City, and few regions in Manchester.
We published an article on the landlord licensing scheme on our blog last November. Landlords should keep abreast of regulations affecting them or risk being penalised by the UK government. To find out about the scheme in general, take a look at first blog here: https://csiprop.com/landlord-licensing/. CSI Prop looks forward to continously keeping our readers and investors updated on the latest happenings in the Australian and UK housing markets. For a detailed list of the changes to HMOs, scroll down to the sources below.
Melbourne overtakes Sydney as the top Australian location for offshore real estate investment dollars in Asia Pacific.
Melbourne seems to be collecting more notches on its bedpost. Not only has it been named the Most Liveable City seven consecutive times; it was also named Happiest City. A new survey has now pegged it as Australia’s Most Attractive City for global property players in the Asia Pac region.
A new survey has revealed Melbourne as the No. 1 Australian city for global property players in the Asia Pacific region.
Property sales and research firm CBRE launched their Investor Intentions Survey 2018, which polled a total of 366 respondents, including real estate funds, developers and companies.
Of those polled, 70% were based in Asia, 18% in Western Europe, the Middle East and North America, and 12% in the Pacific.
The survey found Melbourne overtaking Sydney as the preferred Australian location for offshore real estate investment dollars, as Sydney fell down the yearly rankings from first to sixth. Brisbane came in at eighth place — which was Melbourne’s position last year.
Melbourne’s rise as Australia’s “most attractive city” was “due to its stronger rental growth supported by tight vacancy”.
“Although asset pricing poses a major obstacle, investors remain keen to purchase real estate for risk diversification. Investors’ focus is on income growth as capital value appreciation will increasingly be driven by income growth,” the report stated.
CBRE expects a slowdown in Chinese outbound investment to continue following the introduction of new capital controls by the Chinese government last year.
“This year’s survey indicates that Chinese investors are less keen to invest overseas in 2018. While overall interest remains reasonably firm, fewer investors intend to invest more than they did in 2017.
In their latest report in March this year, UDIA found that the state government will need to increase approvals and commencements of new housing by more than 10% in order to meet demand.
The Victorian government has committed more resources to speeding up the approval process of new suburbs, but the delivery of necessary infrastructure such as sewerage and roads remains a bottleneck.
UDIA Victoria CEO, Danni Addison, said that the supply of new housing being delivered right now was being driven by high population and employment growth.
“The numbers tell us that despite record high levels of building activity, we’ve still got a way to go before we can stop playing catch-up and ensure there’s enough new housing to meet the demands of population growth,” she said.
Data released by SQM Research in June 2018 showed that demand for property in Melbourne has stayed at a constant high. Vacancy rates remained incredibly tight at 1.4%, the same as 12 months before.
Rental rates in the city however, have sharply increased by a total of 3.5% since the the last 12 months, giving potential for high returns on investment, whilst capital growth has slowed.
What are your thoughts about investors flocking to Melbourne’s property market? Drop us a comment below. If you are interested in Melbourne’s potential for high returns, don’t hesitate to give us a call at 3163 8343 (Singapore), 03-2162 2260 (Malaysia), or email us at firstname.lastname@example.org!
A bullish property market ahead for Birmingham (Img source: BirminghamLive)
Birmingham was once called ‘the first manufacturing town in the world’ and was the strategic heart of manufacturing Britain in the 20th century.
The rise of the city in the immediate years after World War 2 led to fears at the top that it was becoming too powerful at the expense of the rest of the country. The government moved some 200 industrial firms and projects out of the region to other parts of the country, which dealt a devastating blow to the Brummie economy.
The once-great city fell into a steep decline in the 1970s, and unemployment rose from zero to close to 20%. In just a couple of decades, Birmingham transformed from the manufacturing powerhouse of a fast-growing Britain to a symbol of failure.
Today, however, paints a very different picture.
All Eyes on Birmingham
The city is currently enjoying a burst of economic success, owing its change in fortune to a pro-development attitude by the Labour-run council and a well-judged government decision to press ahead with important transport infrastructure.
Birmingham’s Big City Plan, announced in 2010, sets out a development masterplan that aims to expand the city core by 25%. This will add £2.1bn yearly to the city’s economy.
As part of the plan, £4bn in transport improvements have been announced to transform road and rail links in the city. Birmingham is the first stop on the High Speed Rail (HS2) coming from London, which will put the city’s more than 1.1 million people within under an hour’s journey of the capital, when it is ready in 2026.
As it is, Birmingham is the most popular destination for people moving from London. More than 6,000 people left London for Birmingham last year, according to the Office for National Statistics (ONS), and it looks like the HS2 will continue to inspire this exodus in the coming years. The second, third and fourth most popular destinations were all within 80km of London.
Businesses are also relocating from London to Birmingham. HSBC’s new head office for its retail and business lending operation, is due to open in July 2018. The bank’s move brings with it more than 1,000 of its existing London staff, and will employ some 2,000 people when it opens.
Deutsche Bank has also expanded its operations in Birmingham, with a total of 1,500 employees in front and back office capacities.
Property Market Outlook for Birmingham
The average house in Birmingham costs £162,701, just over a third of London’s average at £478,853. Office rents in Birmingham are also about a third of those in the capital.
Little wonder, then, that many Londoners and businesses operating in the capital are choosing to move to Birmingham.
Nevertheless, as with other parts of Britain, the supply of housing in this Brummie city hasn’t quite kept pace with demand, charting a potential shortfall of some 30,000 homes.
The deputy leader of Birmingham City Council, Ian Ward said: “Our expanding population means that we need to provide around 80,000 new homes by 2031 and our urban area does not have enough space. If we don’t explore other options we will have a shortfall of 30,000 homes.”
Supply of land is scarce and constrained by the greenbelt, which is a legally protected green area surrounding the city, and not allowed to be used for development.
With the shortfall in housing, rental demand is growing due to an ever-increasing affordability gap for the city’s young population trying to get on the ladder.
JLL predicts an increase in build-to-rent housing with a shift of focus from price towards quality and location. They forecast prime values to hit £500 p.s.f. by 2020 with performance being strongest in the city centre.
Compared to London, Birmingham is still currently 60% cheaper for a new-build project, suggesting significant upside potential.
Investors can look at new-build apartments like Arden Gate in the city centre as a great option for investment. This development has an attractive location, being only a few minutes’ walk from the central transport hub of New Street Station, which has just undergone a £600m renovation. It is close to entertainment and shopping centres and major businesses, including the HSBC head office.
In a 2017 survey, PwC ranked Birmingham as the highest performing UK city, ahead of Manchester, Edinburgh and London.
Regional chairman of PwC in the Midlands, Matt Hammond said, “This may be, in part, due to the big improvements in the city’s infrastructure, including the continuing development of HS2, the extended tram lines and the halo effect created by the redevelopment of New Street Station and the opening of Grand Central.”
Real estate consultancy Knight Frank predicts 19.7% rental growth by 2021, and 23.5% house price growth by 2022, further building investors’ confidence that Birmingham is a high growth market with a promising potential for high returns.
What are your thoughts about the city of Birmingham? Drop us a comment below. If you are interested in Birmingham’s investment potential for high returns, don’t hesitate to give us a call at 3163 8343 (Singapore), 03-2162 2260 (Malaysia), or email us at email@example.com!
CRYPTOCURRENCY: BANE OR BOON? Despite being declared legal tender in many countries across the globe, cryptocurrency continues to draw an equal measure of flak and fealty.
BREAKING NEWS: Yesterday, Bithumb, a South Korea-based cryptocurrency exchange announced the suspension of its deposit and withdrawal services after $35m worth of cryptocurrencies were stolen by hackers.
Bithumb is one of the busiest exchanges for virtual coins in the world and the second local exchange targeted by hackers in just over a week. The news sent ripples through the market with Bitcoin and Ethereum recording price falls, according to CoinDesk, a news site specialising in digital currencies.
Cryptocurrency: A Precarious Medium
This is not the first nosedive in the cryptocurrency world. Digital currencies — like the stock market — are highly reactive, recording multiple tumbles in recent history.
The price of Bitcoin, the world’s best known digital currency, has been tracking a downward spiral since the start of 2018, plummeting heavily from the Dec 2017 price of $18,960 to $6,762 at time of publication.
Still, cryptocurrency has risen from obscurity and is now legal tender in many countries across the globe. And, it continues to draw flak and fealty in equal measure.
The inherent nature of cryptocurrency and the world of blockchain ensures no possibility of double-spend as the system is built to be irreversible and transparent to the peers within its ecosystem. Cryptocurrency has also been touted as the hottest investment opportunity currently available. The potential rewards (and risks) are huge; its value can fluctuate by as much as a few hundred dollars in a single day and, potentially, one can either make (or lose) a lot of money in a short period of time. One can also trade in it, purchase goods with it, earn money from it (through mining), and it is recognised as a form of payment in some jurisdictions.
Cryptocurrencies are high-risk investments and, as such, their market value is highly volatile, fluctuating like no other asset’s. It’s easy to lose (or make) a tremendous amount of money in a day. Cryptocurrencies are not backed by a central bank/organisation, and are therefore unregulated to a certain extent. It is subject to price manipulation. Its security is questionable, as clearly demonstrated in yesterday’s Bithumb heist, as well as incidences of hacking in the past. Perhaps the biggest theft in the short history of cryptocurrency happened in 2014, when more than $450m in bitcoins disappeared from customers’ accounts in the Mt Gox exchange in Tokyo.
Rat Poison Squared
This year, Google, Facebook and Twitter announced a crackdown on cryptocurrency ads on their sites in a move to protect investors from fraud.
Bank of England Governor Mike Carney has been highly critical of cryptocurrency while Bill Gates has gone on record about betting against cryptocurrency, describing it as a “kind of pure ‘greater fool theory’ type of investment.”
More famously, Warren Buffet, in yet another rail against digital currency, described Bitcoin as “rat poison squared” and that it’s “creating nothing”.
“When you’re buying non-productive assets, all you’re counting on is the next person is going to pay you more because they’re even more excited about another next person coming along,” Buffet said in an interview with CNBC.
BitMex CEO Arthur Hayes, however, is unfazed by Bitcoin’s volatility, predicting that the cryptocurrency will hit $50,000 by the end of the year.
Cryptocurrency may well be the investment of the decade with incredible returns, agrees Virata Thaivasigamony of CSI Prop, a property investment consultancy with offices in Kuala Lumpur and Singapore.
“But it needs to approached with a combination of care and sheer ballsiness,” he adds.
“Investment is a very personal matter. For me, cryptocurrency pales in comparison with something tangible like property investment. Real estate has more stability, proving time and again to be a hedge against inflation and a great asset for diversification. Investing in real estate traditionally outperforms most asset classes in risk-adjusted returns. When compared to bitcoin, it is unequivocally the safer investment.”
As inflation rises, so, too, do rents and housing values. In an inflationary environment, real estate assets react proportionally to inflation. And real estate has incredible tax benefits and cash flow incentives.
Ultimately, investing in cryptocurrency — as with all other investments — is a gamble. A question to ask yourself before embarking on any investment is: how risk-averse are you?
We are colossal fans of property investment (duh!) and we make no apologies for it. Still, we remain curious about the many other types of investments out there and would love to hear your thoughts in the comment box below. If you’re a die-hard property investment fan like us, and are thinking of expanding your UK and Australia property portfolio, hit us up: we’ve got some good stuff for you.
Conventional wisdom, especially among Asians, dictates that you should invest in property. CSI PROP takes a closer look at investing in the Singapore property market and compares it to property in other markets overseas.
Property in Singapore is prohibitively priced
Being a tiny island surrounded by water on all sides with not much space available for construction, the only way to build is up — creating the familiar high-rise skyline of Singapore.
With the severe lack of land, it is no surprise that property prices in Singapore are one of the highest in the region — the second highest in Asia after Hong Kong, according to S&P Global Ratings.
The prohibitively high prices of property raises the bar for investors, only allowing for the more affluent section of the population, with ample capital, to invest in the market.
The Prime Minister of Malaysia, Mahathir Mohamad had announced recently that the Kuala Lumpur to Singapore High Speed Rail development will be postponed until further notice.
Following this announcement, envisioned property price growth for the Jurong area in Singapore and the Iskandar region in Johor is unlikely to materialize, much to the dismay of investors.
Government intervention has, so far, kept housing price growth in Singapore in check. A report by S&P Global Ratings found that cooling measures and an accommodative monetary policy have helped to control house price inflation.
Until recently, that is. Despite warnings from the government, house prices in Singapore surged by 9.1% over the past year, after nearly four years of price declines.
This led the government to pull the brakes on the property market yet again. Its most recent cooling measures — possibly the 12th, to date — have been the strongest seen in the island nation in five years.
The government has now slapped an additional 5% stamp duty on property purchases for individual home buyers and tightened limits for housing loans.
First-time buyers who are Singaporeans or permanent residents are exempt from the increase.
Foreigners/foreign investors now pay 20% on stamp duty compared to 15% previously, whilst entities will have to pay 20%, an addition of 10% to previous rates. An extra 5% acquisition tax has also been imposed on developers buying land to build residential properties, which can only translate to an increase in property prices for the buyer in the end.
The government also tightened loan-to-value (LTV) limits by 5% for all housing loans, ostensibly in a move to make property-flipping more prohibitive
Following the government’s drastic measures, new private home sales are expected to reduce by 15% to 20% year-on-year for the whole of 2018, reported Singapore Business Review.
As it stands, developers have already sold 41.7% less private residential units (654) than the previous month, according to the Urban Redevelopment Authority.
Developers volumes were 20.2% below the year before.
The recent action by the Government to control inflation may be good news to home buyers, but from an investment perspective, capital gains from investing in Singapore property may be lacking compared to investments elsewhere.
Poor rental yields
Singapore’s rental market remains in the doldrums, despite signs of a property market recovery from last year.
Property prices do not always have a direct relationship with rentals. Singapore’s rental market is very much driven by foreign demand, given that over 80% of Singaporeans own a HDB flat.
Overall gross rental yields for non-landed private homes from January 2017 to January 2018 hovered just around 3.2% — the lowest in a decade.
The weak rental market deflates returns on investment in Singapore property, lessening its attraction for investors. Stamp duties, property tax, legal fees and agent commissions further cut into profits.
In Singapore, residential property that you own, but are not physically living in (whether rented out or vacant) is taxed from 10% to 20% depending on the house value. Commercial properties have a flat tax rate of 10%.
In June, rentals for private condos and apartments in Singapore fell 0.2% per cent, while HDB rents fell 0.8% per cent in June from the previous month, with volumes continuing to decline as well, according to real estate portal SRX Property.
The rental income that you are able to earn from local property will be impacted by the high property tax, putting a damper on returns.
The United Kingdom
With less-than-stellar returns in Singapore property, it is no wonder that many investors are looking beyond its shores to overseas markets like the United Kingdom and Australia, which can be far more lucrative.
The UK currently faces a severe shortage of homes — in England itself, there is a backlog of 3.91 million homes, according to research by Heriot-Watt University.
The high demand and low supply for housing in the United Kingdom has driven capital growth. Local economies in the regional cities are booming due to initiatives like the Northern Powerhouse, which bring regeneration and infrastructure improvements to England’s North.
Cities in the Northern Powerhouse like Manchester have recorded price growth of an amazing 12.7% last year, with Liverpool following closely behind at 10.8%. This is an indication of the potential that these cities have to offer for the savvy investor.
Singapore currently holds the title of being one of the largest institutional investors in student property in UK and beyond, in recent years. Mapletree and GIC had spent a combined S$2.15 billion on student housing in the UK in 2016, in cities like Leicester, Birmingham, Nottingham, Oxford, Edinburgh, Manchester and Lincoln.
Just this month, Centurion Corp bought a student housing property in the British city of Manchester for S$33.66 million.
Australia faces a similar dilemma to the UK, with the last decade of construction failing to keep up with the country’s record population growth.
Melbourne, in particular, is one of the fastest growing cities Down Under. This city is slated to overtake Sydney as Australia’s most populous city according to the Australian Bureau of Statistics (ABS).
The Urban Development Institute of Australia warned last year that Melbourne could have a shortfall of 50,000 houses by 2020.
Commsec Senior Economist Ryan Felsman commented, “if you look at Melbourne there’s 120,000 people moving to it per annum, but only 75,000 houses being built.”
Whilst the 5 Australian capitals collectively experienced a 0.7% drop in capital growth for the 12 months leading up to May 2018, property in Melbourne performed beyond expectations, growing by 3.3%.
Singaporeans are putting money into Australia. Last year, Cushman & Wakefield reported that Singapore overtook China as the largest source of foreign capital for Australian commercial real estate, as the Chinese government tightened restrictions on overseas investments for its citizens.
Investments into Australia from Singapore quadrupled from about $1bn in 2010 to an excess of $4bn in 2017.
Alice Tan, Knight Frank Singapore director of consultancy and research commented, “Australia has been a popular overseas property destination for Singaporeans, especially for the recent two generations,”
“It continues to maintain its appeal as evident from recent survey findings from Knight Frank’s 2018 Wealth Report, where Australia ranked second on the list of top five destinations where Singapore Ultra High Net Worth Individuals (UHNWIs) plan to buy prime property in 2018,”
“Australia’s economic resilience, adaptability and 26-year record of steady growth provide a safe, low-risk environment in which to invest and do business,” she added.
Cushman & Wakefield regional director for capital markets in the Asia-Pacific region, Priyaranjan Kumar added: “Outside of Singapore, Australia and UK boast two of the most transparent and stable property markets globally for Singapore investors who are largely very institutional in their approach to investments.”
Savvy investors can jump on the foreign property investment bandwagon and take advantage of the supply-demand imbalance in countries like Australia and the UK for more rewarding returns on their investments.
What are your thoughts about investing in the Singapore property market? Drop us a comment below. If you’re interested to tap into the attractive potential that overseas markets have to offer, don’t hesitate to give us a call at 3163 8343 (Singapore), 03-2162 2260 (Malaysia), or email us at firstname.lastname@example.org!
Melbourne’s population is set to keep growing, driving the need for improved and expanded transport-related infrastructure. Opportunities continue to abound for the investor as the city’s planned and ongoing transport expansion leads to jobs creation, driving the demand for more housing.
Melbourne looks set to expand its transportation systems in the air, on land and beneath the ground to keep up with its rapid population growth — so rapid, in fact, that Melbourne is set to surpass Sydney as the largest city in Australia by 2031.
Major infrastructure development plans, totalling to over $60bn, are underway, with most projects set for completion by the 2020s and 2030s. For property investors, this translates as good news. Increased job opportunities and continuous effort to preserve Melbourne’s unprecedented quality of life will ultimately continue to attract home buyers and renters alike. After factoring in the chronic undersupply of houses throughout the city, paired with population and economic growth, investors should arrive at one solid conclusion: Melbourne’s property market is a promising one.
Air: Melbourne Airport Needs A New Runway
Melbourne Airport CEO Lyell Strambi has announced the need for a third airport runway to keep up with booming passenger numbers, following the airport’s celebration of nine consecutive years of passenger growth.
Over 35 million passengers passed through Melbourne Airport during the 2016/17 financial year, and this number is expected to almost double by 2033. This inevitably makes the establishment of the new runway one of Melbourne’s top priorities. The runway, set to operate by 2022, will not only reduce delays as more arrivals and departures take place, it will also supply numerous jobs during construction and operation.
Melbourne Airport is known to be a major employer in the local region. About 16,000 people are currently employed at the airport, with 67% of these jobs filled by people whose homes are within a 15km radius of the airport. It is predicted that by 2033, the number of jobs directly related to Melbourne Airport’s operations will grow to 23,000. Furthermore, with a burgeoning number of travellers arriving in Melbourne Airport, the tourism industry throughout Victoria will surely provide even more jobs!
Land: New Road Fills The Missing Link
What is also set to improve tremendously is accessibility by car, as plans for three separate roadworks commence throughout the state of Victoria. The North East Link, the largest of the trio and currently, the largest transport infrastructure in Victoria, is a $16.5bn construction that will fix the missing link in Melbourne’s freeway network. The project will shorten travel times between Melbourne’s north and south-east by up to 30 minutes, take 15,000 trucks off local streets daily and deliver kilometres of new walking and cycling paths. During construction (expected to begin by 2020) and early operation, thousands of jobs will be created.
Perhaps the most interesting transport development plan in Melbourne is the $1.3bn rail loop and driverless trains that will connect a proposed $30bn ‘super city’ at East Werribee, known as the Australian Education City. Preliminary works to assess the feasibility of this new heavy rail connection have been done as part of the ongoing proposal.
The multi-billion dollar project would see land at East Werribee become home to 30,000 dwellings in medium to high-storey towers, with universities, schools and a research and development hub. Up to 80,000 residents and 50,000 students are planned for the precinct which would see local and overseas universities collaborate to provide world-class education across several campuses. Global tech leaders, such as Cisco and IBM, are eager to snatch a piece of this colossal project.
Underground: Two New Rail Tunnels Need To Be Constructed By 2035
Melbourne City Council has proposed the idea of adding two new rail tunnels — Melbourne Metro 2 and 3 — under the city by 2035. The rail tunnels will join Melbourne Metro 1, the first stage of this underground transport expansion that has been slated to operate by 2025.
Council documents reveal that, should all go according to plan, the second tunnel that links Newport to Clifton Hill via Fishermans Bend, will operate by 2028 or earlier. This tunnel would quadruple passenger capacity for the Werribee line corridor and boost east-west accessibility. Those from the south-west and north-east, too, will find this line adding considerable convenience to everyday travels.
As described in the council paper, Melbourne Metro 3 could be built by 2035. The project would be the second airport rail line linking to Southern Cross, via Arden Macaulay and Maribyrnong. By 2028, trips to Tullamarine Airport is expected to be equal to that of Heathrow Airport today — three rail lines currently service Heathrow.
The various transportation schemes currently in the works will welcome the rising population in Melbourne. To the savvy investor, the widely cited population and economic growth within this coastal capital reads as a precursor for high housing demand. Those with concerns regarding the environmental impact of these projects can be rest assured that measures taken will be passed through strict approval processes before arriving at the least detrimental conclusion.
“Infrastructure projects – electricity, roads, airports, water systems and telecommunications are the foundations of modern economies. They have a huge multiplier effect (a dollar spent on infrastructure leads to an outcome of greater than two dollars)”*. Astute investors realise the mileage that such multiplier effects bring to the investment dollar. If you’re planning to leverage on that and are looking for fantastic property investment options in Melbourne, hit us at at 03-2162 2260 or email@example.com or text us in the comment box below!