Surcharge for foreign investors
Surcharge for foreign buyers of residential property. This will be additional to the existing 3% stamp duty on second homes and buy-to-let purchases that came into effect in April 2016.
The new surcharge remains subject to a consultation in January 2019, so, it could still be overruled. Nevertheless, it remains a very risky tactic of the British government.
The need for overseas investment
With Brexit looming, the UK must prioritise strengthening its relationships outside of Europe, but initiatives like this send the opposite message. The UK property market has become increasingly desirable to overseas investors in recent years, yet these additional costs could begin to discourage – rather than capitalise on – this upsurge in demand.
Maintaining the appeal of the UK market should be a key government strategy to encourage economic growth. Foreign investors typically purchase properties much further in advance than local buyers, meaning house builders strategically rely on selling off-plan to fund construction and unlock financing for further projects.
Foreign investment has become crucial to the UK nationwide, with leading Northern Powerhouse cities, such as Manchester, Liverpool and Leeds, all benefiting from overseas interest. However, the imposition of this higher stamp duty will surely only serve to deter international investment across these cities, which could reduce liquidity in the housing market and reduce transactions.
Bad timing and Brexit
JJL’s Capital Markets report found that overseas investors were responsible for 60% of transactions in the UK property market, increasing to 85% in London specifically. The London market is currently declining and analysts believe that the new stamp duty surcharge could cause a further slump in housebuilding since developers rely on overseas capital.
The decision to target overseas buyers specifically sends the wrong signals: it may dissuade those overseas investors who have helped to support the UK economy through recent uncertain times, particularly in the aftermath of Brexit.
Taken at face value, the stamp duty surcharge on overseas buyers might seem like a viable way to protect the interests of UK homebuyers. But in reality, it might not have the desired outcome. The idea that too much foreign investment is affecting the housing shortage is accurate – the crisis can only be solved by building enough homes to meet demand. Discouraging foreign investment in these new properties could have the reverse effect.
Moving forward, the UK government must look further afield, beyond the boundaries of the EU and appeal to investors in areas such as the Far East. Investar Property Group has been conducting property deals between the North and the Far East for a long time, facilitating high profile joint ventures between the UK and China. The demand from overseas is certainly present, so ensuring that the UK remains favourable and attractive will ensure that our economic potential is galvanised.