Sam Fongho, Business Development Directory at Midas Property Group
Chancellor announces £30b economic stimulus package
By Olayiwola Balogun – The Chancellor Rishi Sunak this week set out a ‘Plan for Jobs’ that will spur the UK’s recovery from the Coronavirus outbreak.
African Voice spoke with some experts on how the plan will save the economy.
Godwin Okri, author of “Investing in Property with Strategy”, described the UK government support for the property sector as ethical capitalism.
Okri said, “Covid-19 arrived on the shores of the UK and immediately affected the economy. In the first three months of 2020, the UK economy contracted by 2%. In April alone, the UK economy shrank by 20.4%, making it the largest monthly contraction on record. The UK’s Chancellor of the Exchequer was forced to step in to save the boat from sinking. Today, he announced changes to the stamp duty tax to help cut costs for anyone buying a home.”
But will this brand of ethical capitalism help the housing and property sector?
Okri said, “Prior to the changes, First Time Buyers (FTB) paid nothing on properties worth up to £300,000 and 5% stamp duty on any portion between £300,000 and £500,000. For those buying a second home (or buy-to-let landlords), there was a 3% surcharge on top of the rates applicable. So, a second homebuyer would have paid nothing on properties up to £125,000 but pay 5% on any portion between £125,000 and £250,000. Thereafter, they would have paid 8% on any portion between £250,000 and £925,000.
“Today, Chancellor Rishi Sunak set out plans to protect the Real Estate Sector by announcing a stamp duty holiday. From today, anyone purchasing a home is except from paying stamp duty on properties worth up to £500,000. This applies to FTBs and investors buying additional residential properties. This scheme will take effect immediately and run until 31st March 2021.
“Speaking in the House of Commons, the Chancellor said that this temporary measure would save property investors on average about £4,500 in purchase costs.”
But does this measure go far enough? He said, “Currently, there is affordability issue in the UK property market. The average UK property price is about £225,000, which makes it unaffordable to the average person. Additionally, there is housing shortage: the UK needs about 300,000 home annually and we are only building about 150,000 annually. This is fuelling high property prices.
To address this, Boris Johnson recently announces a radical reform to our planning system. This is to allow change of use of commercial building to residential use without the need for planning application. The Prime Minister also announced a number of measures to support home building, such as a £12bn affordable homes programme that will support up to 180,000 new affordable homes; £400m Brownfield Land Fund allocated to some local authorities to support 24,000 homes; and £450m Home Builders Fund to help smaller developers access construction loans for new housing developments.
“The Chancellor’s effort to cut Stamp Duty and the PM’s measure to increase the number of homes are welcome news for the Real Estate Sector. Property Investors can now enjoy this Stamp Duty holiday, knowing that their upfront costs are reduced, which would encourage more investment. Also, the additional homes that will be built as a result of the PM’s measures could help make homes affordable.
“In a nutshell, the steps taken by the PM and the Chancellor have redefined our capitalism, making it more humane. Happy homes create happy citizens, which could have positive impact on consumer confidence. This certainly could help change the mood of the nation.”
Sam Fongho, Business Development Director & Property Investment Strategy Expert at the Midas Property Group said, “the decision by the chancellor to increase the threshold of tax to £500K from £125K affect various investment strategies. Investors and second homebuyers will still have to pay the 3% surcharge.”
Sam gave his opinion to African Voice as listed on the subheads below:
First Time buyers
This will enable first time buyers who wish to buy up to the value of £500K to save on tax.
Trading
Trading is when you buy a property with the sole intention of selling it on for a profit. The tax holiday will have a very significant boost to trading since the tax element made many deals in the South of England just not viable. We expect to see a significant increase in trading activity in The South.
Buy Refurbish and Refinance (BRR)
Buy, Refurbish and Refinance (BRR) is one of the most popular strategies in use now for portfolio building. This is where an investor buys a property with CASH, often a rundown property, Refurbish the property to add significant value and then mortgages property to take out all or most of their initial CASH investment.
Buy Refurbish and Sell ( BRS)
BRS is when investors buy a rundown property, Refurbishes it with the intention of selling on. Having to pay Tax twice within a short period of time was a deal breaker. The tax holiday will be a very welcome boost to this strategy.
Office to Residential conversion
Office to Residential Conversion is a strategy whereby developers buy qualifying office blocks and convert them into flats. These projects are often much quicker to deliver than new build projects. The tax holiday will make units under £500K more affordable and will fuel the sector.
New Build Developments
The New Build sector, developers who are actually build from ground up should benefit significantly. The tax holiday will drive up demand for units completing now. The limited tax holiday will actually motivate most developers to fast track their projects and ensure completion within the Tax holiday period.
Moms and Pops down sizing
The tax holiday will help drive up the demand for those in big houses who might want to downsize and on the other hand, the fact that they can buy their smaller home Tax free helps as well. We will see a surge in activity in the market right now.
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