19 January 2016

Residential Development at the Turn of the Year

Well 2015 was a busy, successful, and at times challenging year for the residential property industry.

This is particularly true of the new-build development sector, which has been at the forefront of recent press coverage.

Working as a solicitor in the new-build residential property sector means extensive travel, and during 2015 Forsters have visited the traditional property market investment hubs of Hong Kong, Singapore, Malaysia and Dubai, as well as investing time in emerging markets, including Taiwan, Indonesia, Thailand and China.

An increasing number of our instructions to represent buyers in off-plan investment-driven transactions are generated from these less-traditional sectors, and this is a trend we hope will continue through 2016.

A key attraction to London property is the perceived stability of the market, and in 2015 we have seen this emphasised by instability elsewhere. Several members of the Forsters team were in Hong Kong at the outbreak of the Umbrella Revolution, and demand in Hong Kong for London property remains strong.

This is due in part to unease over the growing influence of China and also high stamp duty costs (15%) for local investment acquisitions. 

Currency fluctuations, particularly the drop in the Yuan and Ringit, and fluctuations in the Chinese stock exchange fuel the desirability of London as a safe-haven for international investors, particularly those from South-East Asia, at the same time as reducing buying power.

Over the festive season the Forsters team have been focused on completing transactions where off-plan contracts were exchanged some time ago, perhaps most notably in the Exemplar Development Fitzroy Place where we represent a large number of buyers.

There has been much speculation in the press and industry generally over completions, particularly in developments where numerous apartments have been sold to overseas buyers whose wealth has diminished between exchange and completion due to currency drops.

From a legal perspective this has lead to an increase in assignment transactions (sales of the benefit of contracts to purchase apartments in uncompleted developments).  The benefits of an assignment to a seller are obvious: stamp duty is avoided and the returns on the deposits after two or three years of capital appreciation can be considerable. 

We are frequently requested to act on assignments, and this is something we don’t expect to let up over the next few years, particularly should finance on assignment transactions become more readily available.

It’s also interesting to note that the Estates Gazette lists London below Birmingham as a centre to invest in.  The infrastructure improvements in the pipeline are making other British cities, where prices are more reasonable, more attractive to investors.

Mr Osborne’s tinkering with the UK’s property tax landscape has certainly presented a challenge to the industry and is perhaps surprising from a Conservative government: shares in the major listed development companies rocketed when the General Election results were announced.

The latest unexpected announcement of an additional 3% rate for rental property and second homes does not help London’s image as a stable safe-haven, particularly coming as it does on the heels of the long-expected introduction of capital gains tax for overseas investors and the thorough revision of SDLT introduced at short-notice in December 2014.

The picture for London property in 2016 still looks good, and there are many compelling reasons to invest in London property, such as political stability and a sophisticated legal and business structure, unaffected by the Chancellor’s activities (though one more change to SDLT and I for one will be ready to protest).

So here’s to wishing you a happy and prosperous new year or, as they say in Hong Kong: Gong Hey Fat Choy!

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