New tiered system of stamp duty rates for commercial property
In the Budget on 16 March, George Osborne announced a new tiered rate system
for stamp duty on commercial property purchases, effective 17 March 2016. Different
rates will now apply to the portion of the property price falling into each band: 0% up
to £150,000, 2% between £150,001 and £250,000 and 5% above £250,000.
Consequently, those investing in larger commercial property in the UK will experience
a rise in rates; buyers of smaller properties will benefit from a reduction. Those buying
commercial property up to £1.05 million in value are expected to pay less stamp duty.
The Treasury estimate that only 9% of commercial property purchasers will end up
paying more.
It has been reported that Melanie Leech, the Chief Executive of the British Property
Federation, commented on the reform: "Commercial property investment can often
act as the catalyst for regional growth and as the economy has recovered investment
has been spreading out from London to the UK's regions, but will now undoubtedly
slow. The real set back is that development in places like the Northern Powerhouse
and Midlands' Engine will now be held back as a result of this out of the blue raid on
commercial property transactions".
Chief executive of SPF Private Clients, Mike Harris reportedly stated: "The tweaks
made to stamp duty on commercial property make it a fairer system and even the
higher top rate is unlikely to deter investors. It is more likely to be absorbed into the
cost of the asset".
Retail continues to lag other commercial property sectors
The IPD (Investment Property Databank) UK Monthly Property Index returned 0.6% to
29 February 2016. Total returns from the three main areas of retail, office and industrial
commercial property returned 0.5%, 0.7% and 0.7% respectively over the one month
period. Total return over a rolling three month period to the end of February saw both
the office and industrial sectors returning 2.8%, retail continued to lag with a return of
1.8%, no doubt inhibited by the rise in popularity of online shopping.
Income growth drives returns
Andrew Friend, Fund Director of the Henderson UK Property OEIC, recently spoke
about the outlook for commercial property, commenting that the high capital returns
previously experienced will not be sustained and that there is a clear transition toward
income led returns. From a sector perspective he remains underweight high street
retail, based on structural change in the sector, instead preferring retail warehousing
as an alternative. He highlighted positive rental growth prospects in areas of new
transport links and infrastructure expenditure such as Crossrail and HS2.
Following a peak in the UK office market in 2015, with stellar activity reported
regionally (Manchester, Edinburgh, Birmingham and Belfast) as well as in Central
London, Charlie Lake, Capital Markets Director for Lambert Smith Hampton recently
revealed: "As forecast, 2015 witnessed investor confidence returning to the regions,
with a wide range of overseas investors and institutions attracted by the higher
returns away from Central London. With income growth likely to be a key driver
for investment in 2016, it is encouraging to see our agents forecast further prime
headline rental growth in 26 of the regional markets."
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