Midweek property news update - 24th March
Keeping a lid on the asset boom, tax day, and CEOs change their minds about offices
5 minutes to read
The outlook brightens, continued...
A few new eye catching economic data points reveal a lot about the trajectory of the economy and consumer spending. Firstly, manufacturing output volumes for the first quarter climbed to levels not seen since May 2019. Expectations for an immediate pick up in growth are at their strongest since August 2017, and order books improved to the highest reading since April 2019. The EY ITEM Club says it is likely to raise its 2021 GDP growth forecast, currently at 5%
Secondly, the unemployment rate unexpectedly fell to 5% in January as the UK entered a new lockdown, largely due to extensions of the furlough scheme and a boom in public sector jobs. Still, analysts expect the rate to peak around 6% by early 2022, which is a much better result than most feared only a few months ago.
Finally, residential transactions soared 46% in February compared to a year earlier amid a sprint finish to get deals completed ahead of what was the intended stamp duty holiday deadline. As Tom Bill tells City AM, what's more surprising is that transactions for the full year 2020 were down just 6%, despite the property market being shut for 15% of it - a remarkable display of resilience.
Keeping a lid on the asset price boom, continued...
In these notes we have been following New Zealand's quest to keep a lid on house prices. This task comes as governments globally grapple with the effects of low rates, swelling asset prices and rising inequality. Earlier this month the IMF warned New Zealand of an impending "pronounced correction" following "unsustainable" rises in average house prices of about 22% in the past year.
The government has now made its move: scrapping tax incentives for investors and pledging to unlock more land to boost housing supply. In a press conference, Prime Minister Jacinda Ardern said property investors were now the biggest share of buyers, with the highest number of purchases on record.
Westpac Bank expects house prices to settle around 10% lower in the long term.
Investors eye life sciences
The United Arab Emirates has agreed a multibillion-pound investment partnership with the UK to invest in British health, technology, clean energy and infrastructure. As part of the deal, Mubadala, one of Abu Dhabi’s state funds, will pump £800m into the life sciences sector over five years alongside £200m from a British government fund.
As the FT-notes, it's a significant post-Brexit vote of confidence, but also reveals why so many real estate developers, investors and landlords are clamouring to enter the market. There was a 45% increase in the number of life sciences companies incorporated in the UK last year, and high-growth UK life sciences companies secured over £1.4bn in equity investment, writes Jennifer Townsend.
It is another of the pandemic's global real estate trends. More than 36 million square feet of new construction is now expected to be delivered in the top 14 life science markets across the United States over the coming years. Institutional investors and landlords are reevaluating portfolios, trying to find opportunities to convert properties in order to meet the need.
The life in offices
In a remarkable turnaround, just 17% of chief executives now plan to cut back on offices, down from 69% in August, according to a survey of 500 firms in eleven countries conducted by KPMG. As outlined by Lee Elliott last month, 2021 will be the year when the debate over the future of the office moderates and the focus turns from revolution to evolution, with a flight to quality and the readjustment of space to suit new working patterns.
The impact on office requirements in the wake of the pandemic is one of a handful of significant issues facing London's landlords, with the outlook of the City in the wake of Brexit following closely behind. On that front, it emerged this week that the UK and the EU are on the cusp of signing a 'Memorandum of Understanding' for their future relationship on the financial sector, aimed at creating “a stable and durable” basis on which to build co-operation.
To find out what that's likely to mean, Tom Bill speaks to Huw Jones, European regulations correspondent at international newswire Reuters. Huw outlines why the agreement is really a talking shop, why the working assumption is now that equivalence won't happen, and why more clarity around the future of London’s financial services is likely to come this summer.
An untaxing tax day
The UK government yesterday published a raft of tax consultations that it had opted not to release during the Budget. For property owners, the day - known in professional circles as 'tax day' - was notable for the absence of the much mooted change to align capital gains and income tax rates.
Nimesh Shah, the CEO of tax advisory specialist Blick Rothenberg tells Tom Bill he expects officials to revisit the issue in the Autumn Budget with an increase to take effect the following April.
Instead, as Tom explains in his above piece, the main news for the property industry was a plan for a residential developer tax to help pay for cladding repairs. The government is also tightening rules on holiday lets, meaning owners will only be able to register for business rates to reduce their tax liability if their properties are genuine holiday lets.
In other news...
Under a little noticed loophole in the UK Covid guidelines, from the 29 March, people will be allowed to leave the UK to prepare a second home for sale or rent.
Border curbs are demanded to stop new Covid strains from France, house-flipping lenders are throwing cash at a red-hot US market, and finally, China's growth could exceed its target, premier Li says.
Photo by Mike Swigunski on Unsplash