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Stamp duty levels to continue to affect prime central London property market
The prime central London property market has seen a year of two halves but uncertainty over stamp duty levels is set to continue to affect the upper part of the sector in 2016, new research suggests. Just over a year the prime market was hit by increased stamp duty on properties worth more than £1.1 million and now this year extra duty of 3% is to be levied on buy to let investors and second home owners. The latest report from real estate firm Knight Frank explains that while the new measure is an attempt to address concerns surrounding affordability and house price inflation, it raises fresh questions over the dampening effect on tax revenues just as buyers and sellers in prime London were showing tentative signs of absorbing the previous increase. ‘Transactions and revenue have declined across London in the period following the December 2014 increase. It highlights concerns over the financially viability of the stamp duty reform, which had the welcome aim of increasing liquidity and affordability below £1 million but runs the risk of becoming a counterproductive deterrent above that level,’ said Tom Bill, head of London residential research. Meanwhile, the sub-£2 million market outperformed the rest of prime London in the second half of 2015, continuing a trend of recent years. In particular, properties worth less than £1 million have grown by more than any other price bracket. Bill explained that the highest growth has largely been outside the higher price brackets of prime areas of central London over the last 20 years. The Knight Frank analysis report highlights the markets where price growth was strongest during each year since the first quarter of 1995 and on a journey that began in Lambeth Walk and ends in Turnpike Lane, £50,000 would have become £1.18 million after stamp duty and moving fees are taken into account, representing a rise of 2,264%. The theoretical journey began in south London before moving further east to areas like Barking and Dagenham in the early 2000s as east London matured as a residential market. It then moved to prime central London in the run-up to and immediate aftermath of the financial crisis, including Marylebone, Belgravia and Fulham. Finally, as price growth pushed outwards from central London as the UK economic recovery consolidated after 2013 the strongest growth was found in the north London markets of Walthamstow and Turnpike Lane. Continue reading
Irish property price growth slowing as new lending rules have an impact
Residential property prices in Ireland are continuing to increase year on year but the rate of growth has slowed considerably, the latest official data show Figures from the Central Statistics Office shows that in the year to November prices at a national level increased by 6.5%. This compares with an increase of 7.6% in October and an increase of 16.2% recorded in the 12 months to November 2014. The data also show that prices actually fell on a national level month on month in November by 0.5%. This compares with an increase of 1.6% recorded in October and an increase of 0.5% recorded in November of last year. In Dublin residential property prices decreased by 1.3% in November and were 3.3% higher than a year ago. Dublin house prices decreased by 1.2% in the month and were 3.1% higher compared to a year earlier. Dublin apartment prices were 6.1% higher when compared with the same month of 2014. However, it should be noted that the sub-indices for apartments are based on low volumes of observed transactions and consequently suffer from greater volatility than other series. The price of residential properties in the rest of Ireland rose by 0.2% in November compared with a rise of 1.2% in November of last year. Prices were 9.6% higher than in November 2014. House prices in Dublin are now 33.8% lower than at their highest level in early 2007 while apartments in Dublin are 41% lower than they were in February 2007. Prices in Dublin are 35.8% lower than at their highest level in February 2007. The price of residential properties in the rest of Ireland is 36.2% lower than their highest level in September 2007. Overall, the national index is 33.8% lower than its highest level in 2007. However, experts think that prices will rise by around 6% in 2016 and point out that the decrease in prices in Dublin has more to do with new Central Bank rules on lending than a downturn in the real estate market. ‘Given that the Central Bank’s rules on high loan to value mortgages apply only to first time buyers in homes over €220,000, their impact has been felt most sharply in the capital where affordability is most stretched,’ said Conall MacCoille, an analyst with Davy Research. ‘The recovery outside the capital began almost one year later, so that affordability is less stretched, and there is probably more room for catch-up,’ he explained, adding that the firm expects property prices to rise by some 7% through 2016 as wages grow and tax cuts take hold. Goodbody economist Juliet Tennant also believes that the Central Bank’s new lending restrictions, which limit banks from lending any more than 80% of a mortgage except in the case of first time buyers, have had an effect. ‘Macro prudential rules are continuing to have a dampening impact on the Irish housing market. However, the… Continue reading
Income producing potential of UK property set to top the agenda for investors in 2016
The income producing potential of various property asset classes is expected to be top of investors’ agendas in 2016, according to a new outlook analysis report. Average UK house prices are set to rise 5% in 2016, but the speed and timing of interest rate rises will dictate the pace and sustainability of price growth, according to the predictions from real estate advisors Savills. In the commercial market, average total returns on UK property investments are likely to slow to approximately 7.5% while in the agricultural market Savills has downgraded its forecasts for the next five years given recent market evidence and the short to medium term expectations for commodity prices and therefore farm profitability. The firm says that income and the ability to unlock the latent value of individual assets through active management are likely to be priorities, due to the current stage of the property cycle and the medium term prospect of interest rate rises, regulation and tax policy in the residential sector, and the outlook for commodity prices in the agricultural sector. In the commercial and residential markets Savills expects a shift towards investment in regional markets, given where recent capital growth has left yields. The referendum on membership of the European Union (EU) presents the greatest uncertainty for UK real estate in 2016/2017, according to Savills, as the outcome has potential implications for all three sectors. The prospects for a pre-referendum investment slowdown may well depend on how close polling companies believe the outcome will be, the report suggests. The report explains that annual house price growth stood at just 3.9% at the end of October, with annual housing transactions appearing to have peaked at 1.2 million per year so the forecast for 2016 is 5% for average UK house prices. It points out that stamp duty changes have left the top end of the London market looking both fully priced and fully taxed suggesting a further delay in the return to trend rates of house price growth. Meanwhile, the mainstream market is more dependent on what happens to the cost of borrowing. ‘Capacity exists for short term price growth if rate rises are delayed further, but rising interest rates will squeeze affordability, making house price growth dependent on earnings and the pace of economic growth,’ the report says. It adds that in some areas in London, for example Ealing, Acton, Greenwich, Lewisham and Waltham Forest, may buck this trend as they attract more affluent buyer groups. Attractive commuter towns will also continue to offer good medium term price growth, particularly where travel times are shortened by rail improvements. Also demand for private rented accommodation will continue to rise. The restriction in tax relief and additional 3% stamp duty charge for buy to let landlords may result in rising private rents and shift investor focus towards higher yielding sectors of the market, particularly key regional cities, it suggests. While Government policy… Continue reading
