An insight into how blockchain is restructuring real estate towards a new age of digitalisation

Christopher Oufi

In 2010, 5,000 bitcoins could buy you a pizza, where 2017 brought about a modern-day phenomenon. That same number of bitcoins is now worth approximately $34 million. Its popularity has grown exponentially, and blockchain technology is here for the long-run despite any concerted attempts to apply intrusive regulation. This decentralised ledger offers the potential to streamline processes, minimise costs and improve efficiency in a number of markets. Among those markets, real estate is most likely to feel the ripple effect of this new age.

To fully comprehend why blockchain is being adopted into real estate, we must understand its benefits towards the sector. A report published by Deloitte on why blockchain should be considered for real estate leasing. Prerequisites for embracing this technology include the need for a common database, catering for the multiple entries that will modify it. Shared databases are integral to leasing real estate which collates a variety of information on properties. Several entities are involved, such as owners, tenants, operators, and service providers.

Blockchain provides the means to reinforce trust amongst these entities who don’t have pre-existing relationships. The opportunity for disintermediation is what excites certain players within the field. Trusted intermediaries can be removed via blockchain as transactions can be independently verified and reconciled automatically. However, many of these transactions, such as leasing and property management, are correlated and intertwined within the same common database. In this context, the value blockchain provides is independence between transactions, establishing transparency, ovo casino as well as simplifying procedures related to these transactions.

Headlines have been made within locations including California, U.S. and Monte Carlo, Monaco, as they become hotspots for residential real estate investment using bitcoin. In January 2018, the most expensive bitcoin-to-bitcoin real estate deal traded in Miami. The Real Deal published that investor Michael Komaransky sold a 9,400-square-foot mansion in Miami for 455 bitcoins. At the time, this equated to roughly $6 million.

The utilisation of payment services to accept proceeds for rent or outright purchases on certain properties via cryptocurrencies has begun. This is facilitated by the U.S. service called BitPay, which has opened a much-needed method to cash out on the notoriously volatile digital asset. However, it hasn’t been all plain sailing for everybody involved in the implementation of blockchain into their real estate activities.

Brokerages in Ontario, Canada, are having a tough time expediting real estate transactions using cryptocurrencies. Ontario’s real estate regulatory body, the Real Estate Council of Ontario (RECO), is raising serious concerns about the matter. Daniel Roukema, senior adviser of external communications at RECO, said that: “RECO is currently reviewing the use of cryptocurrencies, such as bitcoin, in real estate transactions. “RECO does not regulate buyers and sellers, and if a transaction were to occur between two parties without the involvement of a brokerage, it would be outside of RECO’s purview to determine the legality or feasibility of that transaction.” The issue of blockchain that underlies the fundamentals of it becoming a success, is that cryptocurrency can’t be held with trust in the way regular banks operate during real estate transactions. Furthermore, the Real Estate Council of British Columbia has already banned real estate professionals from processing purchases in cryptocurrencies.

Whilst the advantages of blockchain technology are undeniable, one must question, will blockchain become generally accepted by all entities regarding real estate dealings? The revolutionary technology has been praised for its convenience of bypassing banking networks to offer low fees and expedite transactions; its fair share of scepticism has been called into question more recently. With the necessity of a middleman and third parties is being threatened, blockchain continuously questions the systems that govern our daily lives. Whereas the idea of this foreign technology entering such a sector was ludicrous a few years ago, today, it has a tremendous potential to reform the global real estate industry.

The UK construction sector showing signs of stagnation coming into 2018?

Christopher Oufi

Entering 2018, the UK construction scene hasn’t looked too promising as of late.  February 2nd saw the release of the much anticipated IHS Markit/CIPS UK Construction PMI index. This seasonally adjusted index provides an indication of the current state of the sector. A posting of 50.2 for January was below the 52.2 from the previous month. A figure of 50.0 signifies a no-change mark, indicating fractional growth. The current outlook isn’t promising by any means, with headline news causing decline in activity levels and denting confidence in the industry.

The dramatic collapse of Carillion rattled the construction industry, which has been building momentum towards sustained growth following the EU referendum. The British multinational buckled under pressures of repaying their £1.5 billion debt pile. Carillion’s presence within the sector was huge, employing 200,000 people in the UK alone. They had a huge holding on some of the most notable construction projects across Britain, including multiple government contracts and supplying services to the public sector. Noble Francis, Economics Director at the Construction Products Association, said that: “What we don’t know as [of] yet is the impact of the liquidation of Carillion, the UK’s second-largest contractor, and the estimated 25,000 to 30,000 sub-contractors it worked with.”

The flirtatious relationship with risky contracts that proved to be profitless, was an evident sign of Carillion overreaching its abilities. On top of this, their entertainment of late payments from Middle Eastern sub-contractors lead to their pleading with the government and banks for extra leverage. Max Jones of Lloyds Banking Group, who offer emergency support to building firms, said: “The impact of Carillion’s liquidation has rippled down the supply chain and shaken confidence across the industry.” Their evaporation from the scene has meant that a host of mega projects are being left delayed or discontinued. This involves 450 government contracts with five projects approximately worth £3 billion, including the Aberdeen bypass, Royal Liverpool and Midland Metropolitan Hospital, Rotherham to Sheffield tram-train and HS2 joint venture. The contagion effect across the whole industry is frightening with tens of thousands of sub-contractors being dragged to their knees due to the resulting lack of work.

The Office for National Statistics published recent estimates highlighting that the construction sector contracted by 1% in Q4 of 2017. This was after a 0.5% fall in Q3 and a 0.3% decline in the previous three months. As of 2018, the government has made the sector’s main driver of growth the focal point to stimulate the resurgence. Theresa May set out a preliminary objective of constructing 300,000 new homes a year across the UK. The National House Building Council registered plans to start 160,606 new homes, up 6% from 2016. Completed constructions rose 4% to 147,278, the most since 2008. However, an audit of surveyors discovered that their confidence in the government’s target is low, with only 12% believing it is likely that the target will be reached. Many across the UK are worried about the prospect of a construction skills shortage due to the end of free movement of labour from the EU.

With the UK’s construction industry being left to teeter on the edge after the demise of prominent figures in the sector, the government has had to intervene. With optimistic goals being set; millions hope that housebuilding will get back on course. The future looks uncertain with this uncertainty becoming the biggest nemesis towards the construction sector, due to Brexit looming ever closer. It seems the fat cats in positions of authority continue to line their pockets and ring-fence personal interests. Will the detachment from Europe provide new avenues for the industry to develop and forge new partnerships, or send it onto a crash course towards catastrophe?

The transforming business of estate agents

Frances Senn

It is widely accepted that most things are easier done online. Physically entering estate agents is becoming a thing of the past. Nowadays potential buyers often have completed a preliminary property search online prior to their visit. Online property search companies offer clever capabilities; filters, price ranges and property comparisons, with the aim of saving the consumer money. Websites and smartphone apps make searching for a property far more time efficient. Long gone are the days spent waiting for an estate agent to inform you a property has been listed, you can now be proactive each evening and find out for yourself.

Due to this ease of use, big UK estate agents, such as Foxtons and Countrywide, are losing market shares as a direct result of online competitors. This is further problematized by the lack of activity in the UK housing market at the moment. Any increases or decreases remain marginal. Investors are running out of patience and their shares have reduced by about a quarter in the last year.

Traditional brokers are under pressure from the success of online agents who have obtained 5-7 % of the UK home-sales market over the past three years. This is because buyers are likely to save money by consulting online sources when looking for a property.

It is evident that in order to save the estate agents, something needs to be done. Brokers will need to look for ways to cut costs and the easiest way to do this is by mergers and acquisitions (M&A). In a merger, two companies will combine and seek shareholders‘ approval, causing the acquired company to become part of the merging company and cease to exist entirely. In an acquisition, the acquiring company obtains the majority stake in the acquired firm, which does not change its name or legal structure. This could save the traditional estate agents money and increase shares.

Although M&As may not be a completely desirable course of action, figures from Moore Stephens show that 19% of estate agents are currently under threat of insolvency. Given that the popularity of online estate agents does not seem like it will diminish in the foreseeable future, it is a course of action well worth considering.

Despite shares underperforming, there is evidence to suggest that Foxtons and Countrywide could boost shares if the housing market picks up. However, the predictions for 2018, taking into consideration tax changes and the reduced number of properties being sold, it is likely that the market will remain stagnant.

Measures have been taken by the estate agents, for example Foxtons has decided to branch away from its London-based market focus and Countrywide’s chief executive resigned and has been replaced by someone with experience in online business adoption in order to tackle this online battle. However, this caused shares to plummet by almost 20%, leaving investors uncertain over the capability of the firm.

It seems as though the estate agents need to prove their worth within the UK housing market. Online competition is fierce, but the estate agents need to instil some trust in their investors by taking actions to move them forward in our internet focussed world. Until then, their instability will prevent investors from buying into them.

Trump, his tax reform, and the US real estate market

Donald Trump’s tax reform is taking a stranglehold on the U.S. real estate market – Who are the real winners and losers?

Christopher Oufi

On 20th December 2017, Congress passed the Tax Reform Act, including a major revamp of the Internal Revenue Code. As soon as two days after this, Donald Trump signed the tax bill into law, marking his first enactment of a major piece of legislation. However, this has come with some severe repercussion to the U.S. real estate industry, creating winners and losers from a business and individual outlook.

This reform can be seen to positively affect individual income and corporate tax rates, which were subsequently lowered to 37% and 21% respectively at the start of 2018. Although there are obvious effects on American lives on a daily basis, however, the potential impact on the real estate market is what catches the eye.

The amount of interest on mortgage debt that can be deducted is down to $750,000 from $1,000,000. Individuals with homes of greater value will find it costlier to borrow. A property tax cap of $10,000 has been placed on the amount of state and local property taxes – plus income or sales taxes – filers can deduct. Johnathan Miller, president of real estate appraisal firm Miller Samuel, said, “By setting a $10,000 cap nationwide, you are placing high-cost markets on the same plane as low or middle-cost markets. Every homeowner has a dollar amount they can afford or want to spend on a purchase. The more these other costs rise, the less room there is for payment of principal and interest.”

Even before Trump’s tax overhaul was passed into full effect, the real estate market showed signs of a calamity. The City of New York has currently been suffering from its worst quarter in six years. Douglas Elliman published a report detailing a fall of 12% in total sales volume. The city’s most densely populated borough, Manhattan, fell below $2 million in its average sales price for the first time in almost two years. However, this misfortune is not limited to the state of New York according to the National Association of Realtors. They predict that home values in every state in the U.S. will fall, with a drop range of 10% to 21%.

Not only is there mania erupting amongst homeowners to prepay their property taxes but anger has boiled over. This emerged after eyebrows were raised with a last-minute inclusion to the tax bill. The added perk gives a 20% windfall to pass-through businesses like Limited Liability Companies (LLCs) which don’t pay corporate tax on their profits, instead passing it through to their owners who then pay personal tax on it as income. Large corporates [Trump included] are receiving a tax break on their anonymous real estate deals, to which the President himself said the bill would cost him “a fortune” in foregone tax revenue. Just two years before Trump was elected presidential nominee for the Republicans, USA Today reported that only 4% of the Trump Organisation’s clients used LLCs. Today, 70% of their clients use LLCs to buy his real estate.

Questions are already being raised by the American people about the integrity of their president, who spearheaded the Tax Reform Act. Although the landscape of the U.S. real estate industry is unlikely to be permanently scarred, property options are already being secured abroad. Trump clearly had intentions to manifest a tax bill that would benefit large real estate firms from 2018 onwards. Electing one of America’s shrewdest and most successful property tycoons to become President of the most powerful country in the world is proving to be a tense gamble – or perhaps it is just only a question of power and that financial gain in this context no longer has such an allure to the billionaire president?

As for the real estate industry, the clear winners are the brokers and developers, including Donald Trump’s personal business empire. Even though he stated that this reform was to benefit middle-class American families, enabling the U.S. to be positioned on a positive trajectory; in reality, they have turned out to be the real losers. It’s only natural Trump has created a new real estate environment with loopholes. He aggressively fought the 1986 tax reform as it allowed no room for real estate investors, like himself, to make exceptional profit. Congress has made a mistake to listen to Trump this time. One can only hope that Congress listens to the people when they experience the adversity that will unfold with time.

An ageing population

Frances Senn

Recent reports suggest the value of the UK housing stock has risen by a third in the past decade. However, this rise is not coming from new builds or government schemes promoting affordability, but rather it is a result of the ageing population.

Between 1975 and 2015, the percentage of the population aged 65 or above has risen from 14.1% to 17.8%. There are many different factors for this, but living longer means that property is being held for longer. The value is allowed to accrue as a result of inflation. If someone purchased a property 30 years ago, in areas such as London, the value of their property has risen exponentially. Therefore, it is likely that they were able to pay off their mortgage over the course of their lifetime, and are now accumulating wealth simply by virtue of inflation.

It has been said that 73% of people over 65 own their own home completely in 2016. This is a stark contrast to the younger renting generation who are likely to never be able to afford a mortgage, let alone pay one off completely. Statistics show that fewer young people own their own homes. The number of homeowners aged 45 and under fell from 4.46 million to 3.56 million from 2015-2016.

Yet, reports suggest that this influence from the ageing population may not continue to dominate the housing market. If the value remains steady, this could help young people.

Reports suggest that this rise in value of housing stock will not continue. Fitch believes that the UK will become one of the weakest major housing markets. They link this decline to the financial implications of Brexit affecting the capital. In 2017, the value began to fall, albeit only by 0.6% according to Halifax.

There are a number of reasons for this: mortgage approval and transaction numbers remain steady. Moreover, it is taking longer to sell property as the number of months’ worth of unsold stock per surveyor has risen. Given the influence of fixed rate mortgages and fewer people considering buying their own home, this decrease is indicative of a likely future trend.

The general consensus is that there will be a growth of 1-2% over the next year. Those who say there will be a rise also note that any rise is likely to be insignificant, and so the best we can hope for is a flat, stable rate.

The section of the housing market most affected will be buy-to-let landlords. They are faced with stamp duty and tax relief upon selling a property, which eat into the profit margin. If they cannot make a reasonable profit, there is no point in selling on or even investing in the first place.

It therefore seems that the ageing population will have less of an impact on the economy as figures are set to stabilise themselves. Investing in buy-to-let is not the appropriate course of action given the current climate, however this stabilisation will help those who need it most: the younger generation.

The UK House Prices Dilemma

Frances Senn

The value of the UK’s housing stock soars past £6tn, yet this month marks the first month in which UK housing prices have fallen. This is a trend which could, potentially, continue.

Figures show that wealth in housing is mainly concentrated in the expected areas: the South East and London, with the majority belonging to those aged 55 or above (63.3% compared to 3.3% owned by those aged 35). This is hardly surprising given how difficult it is for young people to step on to the property ladder. Despite being worth more money, house prices look set to fall.

Yet, Halifax have identified that, for the first time since July, there has been a decline in house price growth. They state that UK house prices rose by 2.5% from September to November, which is the fastest rate of growth seen since the beginning of the year. In the 12 months to November, prices were 3.9% higher than in the corresponding year. Yet, prices only rose by 0.5% throughout the month of November. The rate of growth was in line with forecast but lower than the one recorded in October.

However, although there was a decrease in November, house prices rose considerably in 2017 in general. According to Halifax, the average property is valued at £226, 821, which is 3.2% higher than the average valuation in January.

There are a number of contributing factors, yet the most important one relates to a simple equation of supply and demand. The supply of new housing has fallen for the last 20 consecutive months up until October. Yet, there is an increased demand for new and affordable homes. This is one of the contributing factors that has caused house prices to rise.

Yet, Halifax do not believe that this growth will continue, given that there will be affordability issues when wages do not keep up with inflation. This indicates that demand will decrease, and so we can expect to see a general price decrease in the future. Moreover, as more and more young people will fail to get onto the property ladder, they will resort to renting. This will reduce the demand for people wishing to own property, which, in theory, should also curb the price growth.

There is debate over the validity of Halifax’s figures. Nationwide claim that house prices had risen by only 2.5% over the past year, lower than the general rate of inflation. Yet, regardless of these discrepancies, any reduction will be useful to help first time buyers. One month of decreased growth, however, does not indicate that prices will definitely continue to fall.

The abolition of Stamp Duty for first time buyers may well increase demand and therefore increase prices as more people might be able to afford to buy. However, this is a double-edged sword. It is difficult to say that a reduction in house prices will not have an adverse effect, drive up demand and then increase prices overall.

Eastern Europe and the EU — reawakened growth

Christopher Oufi

Following a disastrous 2016, Eastern European countries have begun brushing off the pain. A halt in financing for projects from the EU resulted in one of the strongest collective sectors crumble right before their eyes. The construction sector is now beginning to regain momentum within the area, with sustained growth and a positive economic outlook seeming to be the plausible aim. This has most likely been aided in part by the $350 billion German export boom led by Merkel.

Non-compliance of certain EU countries saw the 2014-2020 EU funding temporarily frozen until early 2017. This arose due to the initial misuse of such funding, for example; politicians directing funding to business that would directly benefit them when rallying support for election campaigns. Clientelism is the key factor generating such disparities that are not enabling greater levels of competition within economic environments.

Reliance on national governments to distribute equitably has backfired creating scrutiny from all fronts battering the EU. Nonetheless, the EU adopted a proactive and more hands-on approach, allowing the funding for intended countries to seep into intended sectors. They have been the instigators behind the resurgence of the construction sector specifically, evident from their figures posted over the first half of 2017.

These structural funds were originally designed to help Eastern Europe’s convergence with the rest of EU countries, from an economic standpoint. However, these funds have cushioned the fall in the construction sector and have led to growth in 2017. This has surprised many, including Liam Carson of Capital Economics, who said, “The size of the boost to growth stemming from a recovery in EU fund inflows probably took some analysts by surprise.” He continued to say, “We expect EU structural fund inflows to continue to pick up over the course of this year across the region.”

The continued rise of the construction sector has also attracted foreign investors to pitch in. This has further resulted in labour markets strengthening, most notably in Poland, Czech Republic, and Romania. A survey carried out by Ernst & Young revealed that Poland is second behind the UK for FDI through creation of jobs in the whole of Europe.

Private equity firms and deals associated with the construction sector are also becoming more prominent within the region. Deloitte analysed data from Mergermarket showing a positive trend in private equity deals; signalling their presence was increasing. The average disclosed deal value in 2015 was €675 million compared to that of the €63 million of strategically orientated deals. Within their findings, Deloitte concluded that the construction sector will remain stable or positive, with private equity houses looking to maintain their interest in order to capitalise on the improving perspectives of the construction sector.

A conscious effort now needs to be delivered to actively protect the recovery phase that Eastern Europe is going through. National governments need to step up to stop the hijacking of EU funding to allocate it towards disrupted public sector projects as well as potential new projects. Doing so only attracts the attention needed to through FDI to mount further sustained growth in 2018; allowing Eastern Europe to display their true capabilities within the sector. Who knows, part of the influx cash from the UK’s pay-out in exiting the EU could well go into revitalising the EU construction sector further.

Brexit triggering more than just Article 50 — A stark correction of the UK commercial real estate market on the horizon?

Christopher Oufi

UK real estate is estimated to be worth a staggering £871 billion according to the British Property Federation. This value is equivalent to 10% of the UK’s net wealth, showing just how important this market is to the nation that has immersed itself in a risky situation. HMRC stated that 20% of the commercial real estate is sold every year; totalling £115 billion in 2015 alone — is this set to rise with Britain’s exit from the EU eminent?

Since the triggering of Article 50 and the negotiations commencing, uncertainty has risen amongst big business with no certainty over what life outside the EU will look like for the UK. There has been an unprecedented wave of financial institutions acquiring commercial real estate away from the financial centre of the world, London. This has resulted in the unimaginable becoming a reality for some giants within the financial services industry. A tide of pessimism has activated contingency plans, with offices looking to be secured in other major European cities.

Although  a turbulent 2017 for the prospects of commercial real estate, Savills reported surprising news that total volume of commercial property transactions within Central London will surpass £20 billion by the end of 2017. The year also still has potential to  break the £21.6 billion record set in 2014. UK Head of Capital Markets for JLL, Alistair Meadows, said such strong performance in the face of continued political upheaval and economic uncertainty demonstrates a long-term investor commitment and confidence in the UK real estate market.”

The figures speak for themselves but when put into context, they are not as impressive as initially thought. Robbie Duncan of Numis Securities, said, “However, it’s important to note that sales of two big buildings [the Cheesegrater and the Walkie Talkie] make up a huge chunk of that investment.” Analysts within Jeffries quoted that British real estate investment trusts are at a 30% discount to their booked net asset value when traded.

Brexit has become the poster child of geopolitical events within Europe since the global financial crisis of 2008. A great volume of noise has been produced due to the urgency in finding avenues to shelter from the incoming storm. Germany and France have attracted enormous interest from commercial investors across all ends of the financial services spectrum. The likes of Goldman Sachs and Bank of America have already set up operations in newly acquired office spaces in Frankfurt and Paris respectively, with images being released of what each entail. Bloomberg reported that 50 banks have already discussed relocation plans from London, with notable institutes such as JPMorgan Chase, Citigroup, and Deutsche Bank  actively searching additional office spaces.

A crash in the market ensued due to the political consequences that are manifesting from the crisis within Catalonia’s bid for independence on 27th October 2017. Such shockwaves have negatively affected real estate prices dramatically over the past month within Barcelona, creating a proposition for those financial institutes looking for a quick deal to be made. The opening up of a cheaper option to act as a safe haven for financial operations may be a dark horse for investors looking for a quick and attractive getaway from London.

The current environment has left an air of uncertainty lingering around us; the real estate sector on the whole needs clarity over the transition deals taking place for Brexit. Transparency is key to mustering and maintaining high levels of investment in the capital, otherwise, a chain reaction of capital flight looks like a certain probability.

Global Real Estate Concerns – The House Always Wins?

Benjamin Foster

Global real estate markets are facing increased concerns as the fundamentals of previously booming markets begin to scare regulators and institutional investors. The main target of this disquiet is China, with Beijing and Shanghai both well known for ballooning house prices and witnessing double-digit gains last year. Whilst this has prompted a degree of regulatory tightening in the main cities, Bloomberg’s recent investigation into the economic data of ten key Chinese cities highlights a large degree of fluctuation in the fundamentals behind property bubbles. These fundamentals (including population growth, income gains and the ratio between house prices and pay) and their fluctuation across the Chinese market are raising interesting concerns for those navigating the region’s real estate market.

A deep examination of the ten cities, selected out of the 70 that the government closely monitors, reveals a mixed picture. Shanghai and Beijing — facing lower population growth, moderate increases in wages and elevated home prices — appear increasingly vulnerable, especially when one factors in plans to cap their population and curb urban sprawl, traffic congestion and air pollution. Smaller cities also should be regarded as somewhat risky investments, with Haikou offering weak wage gains and lower population growth, raising concerns over the increased investment in the region. In contrast, Guangzhou and Shenzhen in the south may face less pressure, with far more favourable rates of population and income growth, as well as far more opportunities for development across the board.

A similarly troubled market is also clearly present across the Pacific, with the Australian housing market finally winding down. With almost half a decade of surging prices, the market value of the nation’s homes has exploded over $5 trillion, four times the country’s gross domestic product. Not even the U.S. and U.K. markets achieved such heady peaks a decade ago. Like the U.S. and the U.K. however, Australia’s obsession with home ownership is firmly entrenched in the nation’s economic focus. Record-low interest rates, tax breaks and increasing breadth, and depth of mortgage lending have pumped incredible amounts of debt into Australian homes.

The increasing treatment of housing as a financial commodity has seen a spike of borrowers tying themselves into a maze of mortgage-related products. Whilst this has been incredibly profitable in the short term for banks operating in the region, Daniel Blake, economist at Morgan Stanley, highlights that banks may find it harder to value their collateral if — or more likely when — the market falls dramatically as investors look to consolidate their portfolios of multiple homes. Indeed, the signs from some institutional investors are not particularly positive, with UBS economists declaring that “Australia’s world-record housing boom is officially over… The cooling may be happening a bit more quickly than even we expected.”

The world’s biggest sovereign wealth fund, however, says it has no intention of pulling back from real estate. Whilst Norway’s $1 trillion fund does note that gaps are opening between the noted valued of real estate and their value on the physical market, a potential sign that a correction could be looming, the fund is steadily growing its real estate empire (valued at $32 billion).

“It’s clearly a red flag in pricing if anything is too far off in any direction,” Karsten Kallevig, chief executive officer of Norges Bank Real Estate Management, said in an interview at his Oslo office on Wednesday. Yet perhaps the fund’s holistic approach to the sector, in its eyes, helps to mitigate these risks. Investing in a wide range of key global cities with prime office space, rather than domestic real estate being the backbone of their portfolio, the fund also holds an increasing amount of retail and logistics properties. With Amazon as one of its biggest tenants, the real estate unit is a close observer of the shift to online shopping.

“Retail is going through an evolution for sure, and it is something we are very focused on,” said Romain Veber, the London-based head of European markets. The fund is placing its bets on “high street retail,” which will “survive in the long term,” he said.

Will Abolishing Stamp Duty Help First Time Buyers?

Frances Senn

In the most recent budget, Phillip Hammond announced plans to abolish the stamp duty for first time buyers looking on low value housing. This new piece of legislation looks to help young people climb onto the first rung of the property ladder. The idea behind this is that it will make deposits more financially viable as first time buyers won’t have to factor in the cost of, on average, £11,000 for a property in London.

Stamp duty is a tax payable by the purchaser and is calculated as a percentage of the property value. Hammond’s announcement intends to scrap stamp duty on houses up to the threshold of £300,000. For houses worth £500,000, the stamp duty will be calculated based on the difference between the threshold and the value of the property. He claims that 80% of first time buyers will pay no stamp duty at all, and those looking to live in more expensive areas, such as London, will benefit from the reduced stamp duty charges. Moreover, he hopes that this will save each first time buyer an average of £1,660.

However, this does not attack the root of the problem. House prices continue to rise at a fast pace. In light of recent news that mortgage interest rates will rise from 0.25-0.5%. Those with mortgages on a standard variable rate will have to pay more money. This means that the affordability tests conducted at the point of looking to buy will become even more difficult to pass, regardless of the stamp duty cost. The affordability assessment intends to test whether borrowers would be able to repay their loan if repayment rates were 3% points above the current rate. These increased rates, combined with the Office for Budget Responsibility’s prediction that Hammond’s plans will cause house prices to inflate by 0.3%, move the property ladder just that bit further from reach.

The Chancellor’s plan is not helpful in every instance. Outside of London, abolishing the stamp duty will have little to no effect. Before the budget, the average stamp duty paid on a house in the North of the country was as little as £11.82 as so few properties are valued above the previous threshold of £125,000. First time buyers in these areas will not benefit in the same way that those looking to buy further South will. To truly benefit from this move, a buyer would have to be in a financial position to purchase more expensive property in the first place.

Furthermore, this plan will lead to ‘price bunching’. Under new rules, houses worth £500,000 will charge a £10,000 stamp duty. The stamp duty for houses worth just one penny more will be £5,000 more expensive. It would therefore make sense to look for cheaper properties in London, and other expensive areas, in order to avoid this.

Finally, the most overlooked factor is that the average house price in London last year sits just below the upper threshold at £481,556. Although the abolishment of stamp duty on properties below £300,000 is incredibly appealing and seems generous, the house prices in London prevent the new rule from being effective. Those looking to buy in the capital remain disadvantaged by the budget reforms because the house prices are too high in the first place.

Therefore, the problem lies with the rising house prices, not the sum of stamp duty charged. A select few will benefit, namely those in a financial position to purchase a mid-price property, most likely outside of London. This reform is misleading and fails to take into consideration the exorbitant house prices, regardless of the stamp duty charge.