Following the Chancellor’s new budget, Martin’s Properties CEO Richard Bourne asks, “Will Rachel Reeve’s £40b tax hike hinder international and domestic real estate investment?”
In 2023, the UK was ranked 30th in the International Tax Competitiveness rankings – behind the likes of US, Canada, Japan, Australia, Switzerland, Germany, Netherlands, Sweden, Norway, Greece. The UK’s global location where East meets West, education, legal system, world language and London’s vision for a European Singapore has attracted significant inward international investment. However, the increased taxes outlined in the latest 2024 Budget could push the UK down the rankings. For real estate, this could have an impact on commercial and residential transaction volumes and pricing.
Whilst CGT increases of 8% (lower threshold) and 4% (higher threshold) are unlikely to materially affect decision making, changes to the Non-Dom status and rules may impact inward overseas investment. The increased taxation for buy-to-let residential investors, combined with the Renters Rights Bill, is likely to continue the steady and fast decline of private landlords, which in turn will reduce the supply of rental property and drive rent increases.
The Government has amended its borrowing rules, which will ultimately increase the UK’s debt burden. The markets have already reacted, with UK 10 year gilts increasing 40bps in the last month and 60bps in the 2 months to the end of October. Investment yields are therefore likely to remain higher for longer as the prospect of significant reductions in the risk free rate fade.
The burden of increased taxes and costs for businesses will ultimately be passed on to Consumers, which could lead to increased and stubborn inflation and slowing the rate of interest rate reductions, which in turn impacts borrowing costs and asset pricing.
Across our mixed-use property portfolio, we continue to monitor footfall, trading, and the financial health of our customers. We expect to see the impact of the budget in real terms quite swiftly. In recent years we have seen a surge of international retailers looking to open stores in London, alongside a long history of international investors and tenants for our residential properties. For our retail and hospitality customers, the Budget was challenging. Increased National Insurance costs, increased food and material costs and the proposed Employment Rights Act, will mean price increases being passed on to the consumer so we should expect meal and drinks prices to increase! The changes to Business Rates relief offered some positive news but the impact is unlikely to be significant.
The opportunities arising from the budget weren’t as obvious but fluctuations in pricing resulting from changes in policies and tax could create a favourable backdrop for opportunistic trading of assets. Now that the budget has been delivered, it brings an end to speculation and delivers some clarity which may in turn free up the market, albeit alongside some pricing challenges, volatility and operational risks. As we increase our development activity we will be closing watching the consultations around Land Remediation relief and predevelopment costs and monitoring the impact of APR and BPR changes.
I doubt this budget will cause the seismic fall out that we saw 14 months ago. The UK property market is efficient and marks to market quicker than anywhere else, so it is well placed to absorb any impact. At Martin’s Properties, we are a long-term investor with a multi-generational outlook and a commitment to identifying strategic opportunities and making commercially driven decisions. Our outlook remains positive as our low gearing, strong cash position and highly experienced multi-sector, multi-disciplinary team allows us to capitalise on opportunities that arise.