How the Budget spells opportunity

Labour’s Autumn Budget in October left few of us cracking open the champagne, but it’s not all doom and gloom. We look at what it means for anyone considering investing in residential property in the capital. 

Stamp duty rises 

If you weren’t as canny as the fashion designer Tom Ford – who saved himself around £1.6m in stamp duty on a £80m house purchase in Chelsea by getting in before the Budget – or, indeed, any of the other buyers who pushed through property purchases right up to the midnight deadline, the 5% surcharge (up from 3%) on additional homes, with immediate effect, may come as a blow. 

That means a top-rate SDLT of 19% for buyers who are non-resident or acquiring additional homes – and it will doubtless deter some from buying in the UK. But when the sliding scale of stamp duty was introduced in December 2014, the following year saw both transaction levels and prices rise. And when the 3% surcharge came into play in April 2016, transactions fell but SDLT revenues rose by £1.2bn that year – half of it from purchases of additional properties.  

Before the budget, an investment property priced at £1.5m would have incurred a stamp duty charge of £136,250. Now it’s £166,250. It’s a bitter pill, but not a deal-breaker. In fact, the latest figures from the property database LonRes show this to have been the busiest October in 20 years for transactions in prime London. 

Opportunity knocks 

With prices still 19% below their peak a decade ago, the prime London market still offers great opportunity for buyers. That’s helped by a widespread cautiousness among buyers and sellers – who at the top-end of the market are usually discretionary and happy to hold off for a while. There’s plenty of stock for sale too. The number of £5m+ properties on the market is up by 28% on last year, according to LonRes. 

No one looking at the prime PCL market should be looking for a quick win either. “Investing in prime London should be viewed as a mid- to long-term move – long enough for the capital appreciation to ease the pain of a high initial outlay,” comments Nicolas Roux, founder of Rive Gauche London. 

Knowing what, where and how much, though, is crucial. Where is under-valued, what’s on the up and where can you add most value? That’s where Rive Gauche can help from the very start of your project. 

“We are seeing private family offices who are seeking to acquire property to expand their portfolios. They are typically choosing properties that need extensive renovation and development, which immediately adds value by the time of completion, then holding on to those assets for several years, and refinancing to continue growing their portfolios,” says Roux. 

Turning smaller commercial buildings into residential is another area of opportunity in which Rive Gauche is currently helping clients. Or “properties that come with an element of complexity,” says Roux, including listed buildings, those in disrepair or whose freehold ownership is unclear. “We help our clients acquire properties for the best price and advise on all aspects, including where value-add opportunities lie, how much they will need to invest and what timeframe to exit they are looking at,” Roux comments. 

No change to CGT 

Fears of a hike in capital gains tax had stalled wealthy buyers and buy-to-let investors in recent months. Now it’s confirmed that rate for higher earners is sticking at 24% – which is likely to see a pressure cooker-like release of pent-up demand among wealthy buyers. 

A freeze on CGT is good news for those looking at rental potential in prime London too. There is high demand for super-prime lettings, including among corporate relocators. Rental yields are rising. So will capital appreciation over time. Once you add the two together, where else are you going to put your money and get a better result? 

Goodbye Non-Doms?

From next April, the status of Non-Doms – that’s those who reside here but are tax residents overseas – will be scrapped and replaced by a residence-based regime. It means Non Doms who have been resident here for more than 10 years in the last 20 will have to pay tax on their worldwide assets. 

But don’t expect a mass exodus. In fact, based on some figures from the London School of Economics, the number of Non-Doms likely to leave would just about fill one London bus. So fears of super-prime stock flooding the market are unfounded. 

Some, of course, will drift towards Monaco or Dubai. But despite Brexit, rising taxes and a dearth of sunshine, London’s benefits – including its prestigious schools and universities, a handy time zone for doing business and a vibrant cultural life – outweigh its drawbacks. 

London is still seen as a trophy destination. Being within walking distance of Harrods or Hyde Park carries kudos to foreign buyers. “And a renovation or development project done to the highest standards of design and specification will always have a buyer willing to pay a fair price,” comments Nicolas Roux. 

Building blocks 

Although the Government’s drive to build 1.5m more homes focuses on affordable housing, the promise to employ 300 more planning officers will accelerate the planning process for all. 

There is also talk of introducing grants for eco-friendly improvements, to help investors meet the required energy efficiency standards – and that’s something that can’t come soon enough. “Our clients understand the need to make their properties as energy efficient as possible – but they don’t want to pay over the odds to do it,” says Roux. 

By the way, if you’re looking for London’s best borough when it comes to passing planning applications, Camden has the highest planning permission approval rate at 93%, according to a new report by Flooring Hut. Hammersmith & Fulham comes in a close second at 92%, followed by Wandsworth, Southwark, Westminster and Islington all at 89%. 

The cost of construction

London is world-famous for the high-quality of its artisans, designers and construction. And the good news for those embarking on a project is that – though still up considerably since lockdown 2020 – the cost of materials is slowly falling. 

Materials costs, though, are just one piece in the complex jigsaw that is a property development project – and engaging someone who can complete that jigsaw on time, on (or under) budget and to the highest level of quality is key. 

At Rive Gauche, we can give you a 360-degree view of every element at every stage of an investment, development or renovation project. We bring the wisdom gained from experience and an eagle eye for what lies ahead that could affect the outcome.

What the Budget has taught us…

That while Labour’s announcements may not have felt like early Christmas presents, we do at least have some clarity now, which is essential for keeping a property market in motion. “Clarity is especially crucial,” comments Nina Harrison, London specialist at Haringtons UK, “for those eyeing developments in the upper end of the market as these investments – whether for personal residence or resale – typically unfold over several years.” 

Now that the Government has dished out some nasty surprises early in its reign, hopefully it’s upwards and onwards to greater things now. And that, surely, is worth toasting.  

Image credit: Third.i