Arab investors and expats may see red over Jeremy Corbyn’s UK property plans
The Qzueen Elizabeth II conference centre in London’s Westminster is an unlikely place for a revolution.
Across a busy road from the UK parliament, the 1960s edifice of huge dark rooms carries a slight aroma of buffet lunches of yore and cleaning products.
But on Saturday 12 September, live on television, the left-wing Labour Party leadership hopeful Jeremy Corbyn trounced three other moderate candidates to become the leader of the opposition with 59.5 per cent of the vote.
It gives him a mandate to initiate a significant shift to the left in Labour policy.
John Healey, the former Treasury minister appointed by Mr Corbyn as the shadow housing minister, says in his report for the left wing Smith Institute think tank and with the accountancy firm PricewaterhouseCoopers, that 100,000 new council and housing association homes could be built each year by 2020, costing the government £13.5 billion (Dh75.33bn). Among the funding measures is forcing private developers to build another 16,000 homes a year as part of planning deals.
He has calculated that government spending on housing benefit will be £120bn over the next five years, almost £50bn of which goes to private landlords.
For Arabian Gulf investors that could have ramifications far beyond the field of left-wing thought.
High-end London property has become a major part of investment for both British expats and local GCC Arab investors, spawning billions of dirhams worth of business each year.
According to CBRE research, Middle East investors spent US$2.8 billion on London property during the first six months of this year, representing 24 per cent of all Middle East international property investment during the period.
Enter Mr Corbyn, who is committed to the introduction of rent controls, greater affordable or social housing requirements for new developments and restricting the sale of public assets.
“Too many homes that are built for sale end up as buy-to-let investments or, even worse, as speculative assets that sit there empty for much of the year,” he says. “Many other cities around the world have taken steps to ensure homes go to people who live and work in the city rather than to people who see homes as assets for financial speculation.
“Highly populated cities like Hong Kong and Singapore have taken steps to discourage overseas buyers,” he adds.
“Local authorities could be given the option of levying higher council tax rates or a new tax on properties left empty.
“Additionally, we could look at banning the ownership of property by non-UK based entities or by companies and offshore trusts altogether.”
Perhaps even more alarmingly for overseas landlords, Mr Corbyn also proposes extending the “right to buy” scheme – first introduced by Margaret Thatcher in the 1980s enabling council housing tenants to buy their own homes at vastly discounted rates – to the private rented sector.
“We could redirect some of the £14bn of tax reliefs received by private landlords to help struggling private tenants,” Mr Corbyn says. “We could also investigate whether some of this money could be used to fund a form of right-to-buy shared equity scheme to private tenants in cases when they are renting from large-scale landlords.”
Such a move could impact developers such as Qatar’s sovereign wealth fund Qatari Diar, which is currently repurposing the 2012 London Olympic Park as thousands of purpose-built market-rented homes.
Further adding to wealthy investors’ concerns, luxury-home values in London’s priciest central neighbourhoods fell in the third quarter as higher taxes introduced in December damped demand and encouraged buyers to seek discounts.
Average prices declined 0.4 per cent in areas such as Knightsbridge and Belgravia that Savills defines as prime central London, the broker said on Wednesday. Values in the best districts in the wider city increased by 0.7 per cent in the period compared with the second quarter and were unchanged from a year earlier.
Sales of luxury homes have slowed since the chancellor of the exchequer, or finance minister, George Osborne increased the stamp-duty sales tax for the most expensive homes in December. The levy escalates to 12 per cent on every pound a buyer spends above £1.5 million, with the purchaser of a £5m home paying £513,750 duty, almost £164,000 more than before.
“The increased transactional costs over £1m have undoubtedly made buyers more cautious,” says Lucian Cook, the head of residential research at Savills. “Particularly as the stamp duty change came when parts of the market were beginning to look fully priced after five years of steady growth.”
Prime central London values are down 4.6 per cent from a year earlier after dropping in three of the past four quarters. Prices for properties worth more than £2m fell by an average of 2.6 per cent, the broker added.
“For all but the very best in class properties, many buyers are expecting a discount on last year’s prices at least equivalent to the additional tax,” Mr Cook says.
In addition, the incumbent Conservative party’s stance towards buy-to-let property is also set to become much tougher as the current government attempts to leverage more cash out of what policymakers perceive to be an undertaxed asset.
On July 8, Mr Osborne announced in his budget a shock decision to remove landlords’ ability to deduct the cost of their mortgage interest from their rental income when they calculate a profit on which to pay tax.
The new rules will come in to effect from April 2017 restricting tax relief on mortgage interest to the basic rate, currently 20 per cent.
“Buy-to-let landlords have a huge advantage in the market as they can offset their mortgage payments against their income, whereas homebuyers cannot,” Mr Osborne said in his budget speech.
Although the planned changes may have little impact on GCC investors – unless they happen to be higher-rate tax payers in the UK – the proposed restriction will reduce affordability for some buy-to-let landlords and could even force some to sell up – perhaps affecting the wider housing market.
Unsurprisingly, Mr Corbyn’s plans have only added to a sense of outrage among some estate agents specialising in selling high-end houses in the sort of posh London suburbs frequented by many GCC investors.
“If Jeremy Corbyn follows through with the retrograde plan to give assured shorthold tenants the right to buy at a discounted rate both private and corporate landlords will drop out of this type of investment creating another damaging blow to the central London property market,” thunders James Robinson, the general manager at estate agent Lurot Brand.
“In recent years London has had to absorb increases in annual tax on enveloped dwellings, changes in non-dom legislation and punitive stamp duty increases to nullify the revoltingly named ‘mansion tax’,” he adds.
“The net result of this meddling has been a 33 per cent drop in turnover in property sales in Westminster and Kensington & Chelsea this year compared with 2014.”
Melanie Leech, the chief executive of the landlords organisation the British Property Federation is also scathing.
“He [Corbyn] has suggested some policies that we would be worried about, namely rent controls, which would scare off investment in the build-to-rent sector, which has the potential to deliver a significant amount of new homes and attract as much as £30bn investment,” she says.
“Plans to extend right-to-buy to private-sector property are probably unworkable and no doubt do not accord with European human rights law,” she adds.
With plans to introduce dramatic policies like these many UK pundits are already writing Mr Corbyn off, suggesting his proposals will prove so unpopular with “Middle England”, as the British middles classes are often referred to, that he is likely to be ousted by his own party well before even the prospect of the next election comes into view.
Others, however, point to a newly energised group of young voters who favour Mr Corbyn’s views and warn against underestimating the Labour Party veteran.
Still, with no general election due until 2020, Tom Bill, the head of London residential research at Knight Frank, says time may prove to be on overseas investors’ sides – at least for a while.
“Events like elections can cause political uncertainty in the London market,” he says.
“However with another four and a half years until the next election it seems unlikely the opposition Labour Party’s policies will be a major focus for buyers in the short term.”
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Published: October 1, 2015 04:00 AM