When it comes to regulating and managing foreign investment in highly desirable UK bricks and mortar, understanding the subtleties of the market and the attitudes of its investors is vital.
For the UK, we are in politically uncharted territory. Brexit continues to dominate the headlines, and with the deadline now extended to January 31 2020, it is now more important than ever for the government to offer guidance to investors in this prolonged period of uncertainty.
In the interest of finding out what those in the sector want, Butterfield Mortgages Limited (BML) recently commissioned an extensive survey of UK-based property investors. The study proffered many interesting findings, including how a large majority (82%) think the activity of international investors is vital to making the UK property market desirable and competitive.
Further, a majority (55%) of those BML surveyed are also concerned that Brexit has deterred international investors from considering property investment in the UK. This marks a potentially significant problem for our country’s real estate market: keeping the UK attractive post-Brexit.
Not least because an even larger proportion (57%) think international investment is important to the British economy at large. As such, concerns amongst British investors seem to be crystallising over the long-term supply of foreign capital, and these may need addressing before Brexit is finally resolved.
However, it’s not just a case of more foreign investment
But more subtlety is needed from the government than simply trying to encourage foreign investment. The research from BML also found that a majority of those surveyed (58%) want to see a cap on the number of properties international investors own. This is a significant proportion that demonstrates how complex the attitudes of the domestic market can be.
There is also a general desire and will for reforms to be made more generally across the property market – exactly two thirds of the sample BML surveyed want to see an increase on the amount of stamp duty charged for non-UK residents.
This, too, would constitute a radical change in direction and should only be considered by the government once it has conducted research. After all, we shouldn’t dissuade foreign investment, or apply a strict tax regime as a means of generating short-term revenue.
Brexit makes the overhaul on the rules for property transactions unlikely for the foreseeable future, but that does not mean it is out of the question. It must be the case that if reforms similar to those mentioned are pursued, other incentives to bolster international investment might also be worth considering.
After all, the benefits of foreign investment are significant and recognised. Over the summer, for example, the number of prime central London (PCL) deals was 14% higher than in 2018. This market is often flush with foreign capital, illustrating how even in times of uncertainty, non-UK residents can be a substantial initiator of property transactions.
As the UK looks forward to a post-Brexit world, foreign investment will continue to play a major role in the domestic economy. However, with the role of the UK likely to change on the world stage, policy change must not be ruled out.
Those which augment the UK as a hub for international investment should be the priority, but other considerations about taxation could also be necessary. Once Brexit comes to a conclusion, let’s hope the government delivers these kinds of reforms.
*Alpa Bhakta is CEO of Butterfield Mortgages Limited