I promised you my initial response to the Government's 2012 budget. I have spent much of the last two days analysing it, talking to colleagues and clients, and my considered view can be summed up in three words: Business as Usual.
HMG has raised the Stamp Duty Land Tax (SDLT) from 5% to 7% on residential property purchases over £2m with immediate effect, and for residential purchases by ‘certain non-natural persons’ – companies and collective ownerships/partnerships – SDLT is now 15%. From April 2013 HMG also plan to levy ‘large annual charges’ on £2m properties held by companies. The devil will be in the detail as many property holding structures which have not been set up to avoid SDLT may now have to be unwound. It is therefore highly probable that many of our clients will need sound advice, and some will need to take action.
Having said that, initial soundings from our buyers, sellers and staff indicate that, despite everything, the rules of the game have not changed. We had a number of quick exchanges on Wednesday, in almost every case from buyers who were most of the way through the conveyancing process: the midnight deadline focused the minds of purchasers who felt that the potential savings outweighed any danger inherent in bypassing due process. On the other hand, one purchaser in our Primrose Hill office commented that a 2% hike in SDLT amortises pretty comfortably when you’re planning to spend at least 10 years in a beautiful house. While property values are still rising healthily, an increase in SDLT certainly looks better than a 1% property levy every year! As to international buyers who are purchasing in their own names, I do not think SDLT at 7% will worry them unduly – such investors are more than acclimatised to purchase duties of 7-10% in other countries (not to mention hefty non-dom real estate taxes when selling).
Clearly property in the £2-£2.25 million range will experience some turbulence in the coming months, but as yet no deals have fallen through, no vendors in this bracket have suggested asking-price reductions, and we have not recommended any. Indeed I suspect that this SDLT hike may in the end prove inflationary: Central London is already desperately short of houses in the £1m to £2m region, and as buyers who are priced out of the £2m range start buying slightly less expensive property they will reduce supply even further, and the demand will force prices upwards. As ever the market will dictate the correct price.
It is also business as usual for the rental market, as the vast majority of rental properties fall below the £2m level. Therefore investment buyers, including those who buy in company names, will largely be unaffected. In the short term, there may be a flight towards rental properties by those looking to buy around the £2m mark, but we do not believe this will be a large enough swing to affect the underlying trends in the rental sector, namely that stock levels remain low, and rents are continuing to rise due to increasing demand. The rental market has been robust in the first two months of 2012, and we anticipate that this will continue to be the case for the remainder of the year.
Several things are certain: if you have property contained in a company vehicle for whatever reason (and not all such arrangements are SDLT-related), this is the time to consider selling. There is a window of opportunity which, if you don’t take it now, may not come again, and by announcing a consultation on an annual levy and Capital Gains Tax to be implemented next year the government is indicating that the magnitude of taxation may increase yet further. Our Valuation and Surveying department specialises in tax valuations, and will be delighted to help should you need a valuation prior to such a transfer. Do also bear in mind that if you go on to sell your property through John D Wood & Co. their fees will be credited in full against our sales commission.
For the short term, the pressures of supply and demand will continue to push London prices upwards. There may be a small influx on to the market of property being sold by companies; some private sellers may decide to stay put and build down or up, holding off on discretionary moves. I believe that both trends will largely cancel each other out.
Interestingly we had a number of offers yesterday, and already again today for property over £2m. These are from keen purchasers, rather than bargain-hunters trying to pick up a property when vendors may be feeling nervous. I anticipate that within three months purchasers will bite the bullet on the new SDLT rate of 7% and accept it as an unavoidable cost on purchase.