TOP TIPS OVERSEAS INVESTORS NEED TO KNOW BEFORE BUYING INTO THE BURGEONING PROPERTY MARKET IN LONDON
“The property market in London is virtually exploding as it has become THE place to invest for overseas buyers” says a report from Austin David Apartments, leading serviced property providers for guests that require a vacation home rental for a short period in London. Wealthy investors from countries such as Russia, China and Malaysia have been buying properties in London as a base for their visits to the UK, and others from the Eurozone have also bought as a hedge against any break up of the single currency area. And that is just the tip of the iceberg with purchasers from other countries Like Nigeria, Emirates and Australia are also on the increase” says David Okeke, Director of Austin David Apartments and an expert in this market sector.
Latest figures from the UK Office for National Statistics show that property prices in London shot up 20.1% in the 12 months to May to an average of £492,000 (US$840,000) compared with a rise of 7.3% across the rest of Britain. “But this doesn’t seem to be deterring international buyers” continues David “however changes in UK tax laws, and the closure of other tax loopholes, are issues potential overseas buyers need to be aware of as well as what to do with their properties once they have them.”
Unlike countries such as Australia, Switzerland and Singapore where there is legislation controlling foreign buyer’s access to property, London Mayor Boris Johnson has, up until now, been a supporter of overseas investment in London real estate, arguing the money has driven new development. However the rise in prices is now causing concern that local people are being priced out of the market and in a major speech in January he said “I hope international investors will understand that we want to see new build homes that they buy lived in. My view is that London homes aren’t some sort of new global asset”.
As David Okeke comments “Only this week I was in meetings with some of the Capital’s leading developers….Barratt, Galliard and Fairview, and I was told that a big new development in Islington. A highly sought after area had sold 80% to Asian buyers. However of this 80%, only 20% of the properties have been occupied. It appears that a lot of buyers don’t want to let out their properties on long term contracts as they see it as a negative when they want to sell and our experience at Austin David is a lot of investors want to sell on after about five years to take their profit as property values rise. An obvious solution to this is short term lets, and we know this is an area a lot of overseas investors are totally unaware of.”
So what are David’s tips for new investors to the London property market?
Be aware of the change to taxes. The British Chancellor brought in new legislation at the end of 2013, to take effect in April 2015, in that foreign property owners will pay tax on any gains in value on UK properties they own. So Capital Gains Tax (CGT), which was previously not paid by non-UK resident sellers, be they individuals or companies, will be charged on resale at a rate of 28%.?
New offshore company purchasers will also pay Stamp Duty at 15% but beware…if you transfer a property to an individual or individuals who own the company, this will avoid the charge but expose those individuals to UK Inheritance Tax at 40%, so this perhaps is an option which will appeal only to the very young and very healthy who are quite certain of their own longevity. “However there are, as ever, ameliorating options to consider for all these problems. Buyers do need to consult experts about this and I am getting asked more and more frequently to recommend tax experts and lawyers to our clients” says David.
Take advice and consider where to buy your property. London is one of the greatest cities in the world and there are two main things to consider before you buy.
Firstly, do you want to buy in an existing high value area like Mayfair or Knightsbridge or for access to the financial centre in the City, in Docklands….or do you want to invest in one of the new ‘hot’ areas such as south of the Thames from Battersea along towards the City and The Shard, the tallest building in the European Union. The redevelopment of this stretch is changing the landscape along the river and relocation of many businesses and embassies, including the US, Chinese and Dutch, along with the Northern Line Underground extension, have been catalysts for growth
Or do you want to buy in an area which is popular with your fellow countrymen? David says people frequently like to buy in areas where they will meet and socialise with others from their own part of the world. For instance…Chinese and Japanese people like to buy in Docklands or St John’s Wood; Americans like Kensington; Russians like Holland Park and Bayswater; Arabs like Bayswater and Lancaster Gate, or for the very wealthy of all nationalities Mayfair and Knightsbridge is the desirable area. Nigerians like North London areas such as Hampstead, Golders Green, Hendon and Indians and Pakistanis prefer Wembley and Hounslow.
One thing all new overseas buyers like is new build properties with a high spec for fixtures and fitments which they see as having less maintenance and be easier to sell on. However, a lot of buyers want some sort of return on their investment while they hold it, and short term lets are now the latest trend. Apart from generating income, it means there is someone local on the ground in London to keep an eye on the property and, obviously, if it is lived in, albeit for only short burst of time, this makes the property much more secure. “We like to call this our ‘Guardian Experience’ says David “it brings a comfort factor to overseas owners who may visit their property maybe only once a year, perhaps less. At Austin David, we look after the best properties because we have the best clients. This is why we are who we are. This is London, British properties need English care, so that is what Austin David does. Cares when you’re not there and this what we call the Guardian Experience.”
So, for overseas investors still keen to get in to a market that forecasters tip will continue growing over the next five to ten years, the key is to take advice when you buy from the experts so you maximise on your investments both from a tax, income and maintenance perspective.
Experts like Austin David Apartments are the obvious solution.