Stamp duty for foreign buyers could be increased by up to 3%, UK Prime Minister Theresa May announced last weekend at the Conservative party’s conference in Birmingham.
The new increase in stamp duty, to be paid by individuals and companies not paying tax in the UK, will be rolled out after a consultation.
The new levy, once effective, is in addition to the stamp duty surcharge introduced in April 2016 on second homes.
UK STAMP DUTY FOR INDIVIDUALS OWNING MULTIPLE HOUSES
Amid criticism that the Government’s efforts to tackle the housing crisis has been a flop, Mrs May’s latest measure intends to bring down property prices for British residents by deterring foreign buyers.
Mrs May said on the BBC that her party is “very concerned about the impact that foreign buyers have on the housing market and the impact they have on people who are living here and trying to get into the housing market. The evidence is that foreign buyers coming in pushes house prices up and lowers home ownership here.”
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However, the move could be counterproductive, as reduced foreign investment could set back house-building efforts. Builders sell off-plan property in order to seek better financing terms, and the lack of foreign cash injections could slow down projects in the pipeline.
Virata Thaivasigamony, CSIPROP’s Director of Research feels that this would be a stopgap measure with potentially no real long term solution for housing supply in the UK.
“Price growth is influenced by supply and demand. There is already a glaring shortage of housing in the UK, which is a driving factor in house price inflation. Existing homeowners are facing challenges in downsizing or upgrading their homes, while millenials are unable to afford their own homes, hence the need for buy-to-let property.
“This new measure could be good in the short term for local buyers. However, foreign property investors have helped increase the supply of housing in the UK, and deterring foreign investment will have a knock-on effect on housing supply,” he said.
Trevor Abrahmsohn of estate agents Glentree International says, “whilst it is a laudable aim to raise a few hundred million pounds for homeless people, at this critical time for the country, when you want to encourage inward investment why stick up a notice to foreign investors saying ‘we’re closed for your business’?”
Adam Challis, head of residential research at property agents JLL, said: “It’s another small change but if it is read by investors as a signal of something broader, it’s quite possible that it will have a material effect on supply.”
Recent research has indicated that England has a severe backlog of 4 million homes. The Government will need to build 340,000 homes per year until 2031 in order to address the backlog. Current building efforts have fallen short — in 2016/17 only 217,350 homes were built and the government’s current pledge to build 300,000 homes annually by the mid-2020s, will not fully address the shortfall.
Thus, any slowdown in housebuilding could further push property prices, having the opposite effect of what Mrs May intends.
“If you’ve been sitting on the fence about investing in UK property, now is your best chance before the surcharge gets implemented. We are talking substantial savings,” Virata advised, adding that he foresees increased investment activity in the near future as foreign buyers attempt to beat the surcharge increase.
The increased duty will raise £40m to £170m a year, against the existing £9.5bn for residential property. Mrs May said this would be spent helping rough sleepers, whose numbers have been rising.
In August the government launched a £100m drive to eradicate rough sleeping in England by 2027.
If you’ve been sitting on the fence about investing in UK property, don’t hesitate any longer. Learn more about the savings that you get from buying before the stamp duty surcharge: give us a call at (+65) 3163 8343 (Singapore), 03-2162 2260 (Malaysia), or email us at firstname.lastname@example.org!
By Ian Choong Edits & additions by Vivienne Pal
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