23 December 2013

It’s been an interesting couple of weeks for overseas investors with an interest in the UK property market

It’s been an interesting couple of weeks for overseas investors with an interest in the UK property market, but behind the headlines around the extension of the Capital Gains Tax (CGT) to foreign investors lie some other interesting developments.

Weeks of speculation were brought to a head on 5 December when the UK’s Chancellor of the Exchequer George Osborne announced the introduction of a CGT for foreign property investors.

The issue has generated a wealth of press coverage, with the prevailing expert view being that the tax, which will only apply to profits realised beyond April 2015, is unlikely to seriously affect investors’ current positive attitude to London property.

Take a look at the Investor Centre section of our website for our in-depth analysis of the new CGT proposal and its repercussions.

Despite the attention focused on this new CGT, UK property investors might be more interested in some other announcements that have received significantly less attention from the media.

27% house price growth forecast

The Office for Budget responsibility has revised its UK-wide five-year house price growth forecast to 27%, a 12% increase on the estimate they published last year – a clear sign that the OBR believes the current buoyancy in London and recovery across the rest of the country will continue.

UK housing shortfall set to continue

The Chancellor also announced a further GBP1 billion in government loans for house building, a move towards redressing the wide-ranging housing undersupply seen across the country. Though the move will increase supply in some areas, investors can expect the current nationwide supply-demand imbalance to continue for the indefinite future -- according to the RICS this investment "will only make a very minor dent in the housing deficit". The loans are also likely to focus on areas outside of the capital, so investors can count on little change to the shortage of homes that is driving price growth in London.

Carney embraces steady, stable growth

Outside of the Autumn Statement, there was also news that could have far more significant implications for investors in the recent interviews given by Governor of the Bank of England Mark Carney.

In light of the increased regulatory powers given to the Bank earlier this year, Mr Carney has stated the Bank’s intention to monitor and minimise the potential for a new property bubble developing in the UK, possibly through the tightening of lending requirements.

Although at first glance investors may take this as a negative development, steps to avoid a bubble should always be welcomed. London investors should be looking for secure and stable growth over the next five-to-ten years, the typical holding period we recommend to investors.

While bubble markets can make your short-term returns seem spectacular, they are intrinsically risky propositions with just as much potential to lose significant capital – this is one of the main reasons we’ve been cautioning investors against entering the currently rising real estate market in Dubai.

A market policy that allows for and embraces value growth while ensuring it doesn’t get carried away into dangerous territory should be well received by any shrewd investor, and we fully expect this to continue to be the case in London and the rest of the UK.

IP Global

Written by IP Global

IP Global’s full-service approach is built on extensive market research and analysis combined with a significant financial commitment to every investment we offer. We are able to manage the entire investment process end-to-end, from sourcing, financing, and management to those all important exit strategies, making investment in real estate as straightforward as investing in more traditional asset classes. Our expertise, experience and strong record have produced over USD2.8 billion in international real estate investments in over 30 markets worldwide.

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