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To What Degree Do Foreign Investors Put Money Into Uk Housing?
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Investors from Russia and China are buying English homes, but are proving to be buyers and not builders. A new tax may quell that - or simply change what they buy.
There is a reason that the British government closed a particularly maddening tax code loophole in early 2015. By imposing as much as a 28% capital gains tax (CGT) on foreign property owners, it levels the playing field (so to speak) between buyers in the UK who are residents and foreign investors, the latter of which have been snapping up huge numbers of residences as investments.
This is the UK, after all, where a housing shortage already has one million British residents waiting for a home and where homebuilding has woefully lagged demand for most of the 21st century. What has been happening is buyers from Russia, China, Singapore and the Middle East are snapping up flats the moment they are available for sale. It is an indicator on the high value of British property, to be sure, but when outsiders treat English homes as investment vehicles, not a place to live, it is cause for resistance. Parliament agreed.
It is also yet another indicator as to why investment is best for the country at the development level, not the home buying end. Investors from abroad as well as in the country have done well with capital growth land opportunities, turning unused UK land into homes. They are increasing supply, not demand, and as such they alleviate a vexing scenario for homebuyers of the kind who actually wish to inhabit the properties.
It is widely understood that foreign buyers, some of whom do spend holidays in their second residences, are largely concentrated in London’s tonier districts. But they’ve been buying properties outside the Capital City as well:
• Homes in South Wales, flats in Manchester, Liverpool and Sheffield, as well as cottages in Weston-Super-Mare were reportedly being sold on websites directed at Chinese and Russian investors (according to reporting in the Daily Mail in late 2014).
• Cheshire-based property firm Assetz says a third of its sales in August 2014 were to Chinese buyers.
• A spokesperson for Sequre Property Investment, which specialises in high-income producing buy-to-let properties in a number of UK cities, told the Daily Mail that foreign investors were “corrupting the market,” as evidenced in exceptional price hikes in two-bedroom Manchester flats.
Will the new CGT dampen down this activity - leaving more homes at affordable prices for middle-income buyers?
A London-based agent with the property firm Druce told The Wall Street Journal it would likely not affect his foreign customers who buy in such places as South Kensington and Chelsea. He said those buying at prices north of £2 million would not worry about the extra tax, that the stability of the UK economy overall still provides a safe haven for those from countries that include Russia and China. Another London-based agent thinks that it might shift investors from single, higher-cost properties to instead buy multiple, lower-price flats.
For managers of UK property funds who develop homes, this isn’t necessarily bad news. But the strong market for homes overall should be incentive enough to build. Their challenge is to achieve council approvals of land use changes, which is more likely to be achieved today than five years ago thanks to the National Planning Policy Framework instituted in 2013.
Investors in any type of real estate should have a broad understanding of the opportunities, risks and rewards. An independent financial advisor is best equipped to provide this with objectivity.
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