Foreign buyers increasingly-deterred by property taxes, agents say

Reports suggest foreign buyers may be losing interest in directly owning property in London and are in some cases increasingly attracted to property funds.

In the first report Naomi Heaton, chief executive of London Central Portfolio, says her recent tour of investment sources in Hong Kong, Singapore and Kuala Lumpur shows “a notable shift in attitude amongst investors who would have traditionally chosen to hold property directly.”

This is down to the increased taxation and bureaucracy attached to landlords and rental property management, she says.

“There’s now a very real appetite to diversify their Central London residential holdings through fund structures .... exempted from the new non-resident capital gains tax, upcoming non-dom injeritance tax, and unaffected by the new rules on mortgage relief. This seems very compelling for many investors, alongside the benefits of buying power, strong projected returns and competitive financing arrangements” she says.

Heaton - who is now touring investment sources in Bermuda and the Middle East - says even those investors who stick to buying physical properties rather than funds are changing their behaviour. 

“Recent tax changes such as Annual Tax on Enveloped Dwellings and the upcoming non-dom inheritance tax makes buying in a company much less attractive. People who have previously bought this way, may be opting to buy in their own names” she says. 

This emerging shift from direct ownership to indirect investment comes at the same time as London estate agency Marsh & Parsons reports that domestic buyers have risen to a new level of prominence in the capital’s property market. 

During the third quarter of this year 79 per cent of property purchases were made by domestic UK buyers, up from 75 per cent a year ago according to the agency.  

A statement by M&P says: “Sales activity from domestic buyers has surged forwards to fill the gap left by overseas buyers and investors, who have been left more cautious by the strong sterling, stricter government measures on non-domicile status, and heftier stamp duty for higher value purchases.”

The agency says overseas and foreign nationality buyers accounted for just over a fifth of all prime Greater London property purchases during the third quarter of 2015, down from 25% of all sales during the third quarter of 2014. 

This pattern is also being mirrored in Prime Central London, traditionally favoured by overseas investors, with the proportion of foreign buyers standing at 32 per cent, down from 34 per cent in Q2 and 37 per cent a year ago.  

“London has had to bear the brunt of some trying taxation changes in recent months. This has cast some shadows over the capital, but the millions of Londoners who live and work in the city have acclimatised much more quickly to the property taxation changes, and have risen up to fill the void left by overseas purchasers and investors” says Peter Rollings, CEO of Marsh & Parsons. 

“We’re noticing longer purchase chains than ever as domestic buyers really start to dominate the market, and demand is really putting a strain on supply” he says.