Gavin Barwell strikes pro-development note at MIPIM

Gavin Barwell strikes pro-development note at MIPIM

The government still intends to implement a permitted development right to allow demolition of offices for new homes. So said the planning minister, Gavin Barwell, at MIPIM last week.

Housing Minister Gavin Barwell was in Cannes last week, setting out his support for development at the annual MIPIM property event.

Mr Barwell spent the Conference highlighting the Government’s support for development, in an effort to attract the global investment that is needed more than ever after the Brexit vote.

The Guardian reported Mr Barwell as telling a gathering of UK developers that:

“If you’ve got parts of the country where you want to build homes and you’re struggling to find land, you come and see me and I will then raise those issues with the relevant local authorities. That’s an offer to anyone in this room – if you’re struggling to find sites you come talk to me and I’ll try and do something about it.”

The pro-development tone was furthered by a UK Government pamphlet, handed out to potential investors, and including a message from Prime Minister Theresa May stating that:

“As we leave the European Union, I am determined that we will seize the opportunity to forge a bold new role for a global Britain as the most outward-looking, free-trading nation in the world.”

These warm words were accompanied by some policy clarification, in the form of an interview given by Gavin Barwell to Planning Magazine. Mr Barwell confirmed that plans to widen office-to-residential permitted development rights to allow office buildings to be demolished and replaced with new-build residential, announced back in 2015, were “something that we want to go forward with”. Mr Barwell said:

‘‘Given the success that the permitted development policy has had, in terms of bringing forward additional supply, that is definitely something I’d want to proceed with as quickly as we can.”

The Minister also said that proposals to impose local plans on authorities without plans in place by 2017, also announced in 2015, would be delayed until changes proposed in the Housing White Paper were made to the National Planning Policy Framework. Mr Barwell said:

‘‘If I was intervening to produce a plan, I’d want to do it based on the things we have set out in the White Paper. And if I was doing it right now I couldn’t do that, because that’s not what planning policy says right at the moment.

I don’t think it would make a lot of sense intervening before you got to that moment. But as soon as that’s done, then potentially we are game-on.”

It is striking that two policies that were discussed at MIPIM 2015 are still not implemented in 2017, and are in fact both subject to further delays. Commitments to encourage investment and support growth are easy to say in Cannes, but are perhaps harder to push through Whitehall.

Why are Private Rented Communities so important?

Why are Private Rented Communities so important?

Adam Challis, JLL UK & EMEA Head of Residential Research, comments on the state of the Private Rented Sector, including its growth in the last few years and why it’s important to help solve London’s housing supply challenge.

Permitted development rights - how to ensure that your conversion is zero-rated

Permitted development rights - how to ensure that your conversion is zero-rated

Nathan Williams, Tax Partner at TLT Solicitors, writes:

Permitted development rights (PD Rights) mean that commercial premises such as offices can be converted to residential use without the need for planning permission. 

Developers should ensure that they are able to take advantage of the zero rate of VAT that is available on the sale, or grant of a long lease, of a building that has been converted from a non-residential to a residential use. The availability of the zero rate of VAT assists with the developer's VAT recovery position and can potentially eliminate VAT costs for any purchaser.  

A non-residential to residential conversion will generally be zero-rated if the developer sells the freehold or grants a long lease of the building which is designed as a dwelling (or number of dwellings) and meets the four criteria set out in the VAT Act 1994. These are:

  • The dwelling must consist of self-contained living accommodation;
  • There is no provision for direct internal access from the dwelling to any other dwelling or part of a dwelling;
  • The separate use or disposal of the dwelling is not prohibited by the terms of any covenant, statutory planning consent or similar provision; and
  • Statutory planning consent has been granted in respect of that dwelling and its construction or conversion has been carried out in accordance with that consent.

It is the fourth condition that will pose problems for conversions carried out using PD Rights, as no statutory planning permission is required.

HMRC has issued a brief that clarifies the evidence that will be needed in cases where a conversion takes place using PD Rights. Instead of statutory planning consent, the developer will need to provide one of the following:

  • Written notification from the local planning authority advising of the grant of prior approval;
  • Written notification from the local planning authority advising that prior approval is not required; or
  • Evidence of deemed consent and evidence that the development is a permitted development. This will include all of the following (where the documents have been created): plans of the development, evidence of prior use, confirmation of which part of the planning legislation is relied upon for the development and a lawful development certificate, where one is already held.

Whilst there is no change in VAT law regarding zero rating, there will be additional evidential burdens to satisfy HMRC as to zero rating of sales of converted buildings using PD Rights.

Developers will welcome HMRC's clarification of the PD Rights position and the evidence it will expect a developer to obtain. Going forward, it will be important for developers to retain that evidence should HMRC ever query the VAT status of their supplies of converted buildings. Failure to comply runs the risk of HMRC denying the zero rate treatment which could result in unexpected VAT costs for the developer. 

Contributor: Alexandra Holsgrove Jones 


This publication is intended for general guidance and represents our understanding of the relevant law and practice as at May 2016. Specific advice should be sought for specific cases. For more information see our terms & conditions.

The UK property market is evolving

The UK property market is evolving

A tenure shift is changing the face of the UK property market and ending the buy-to-let era.

In the UK, homeownership was once a common goal. Levels peaked in 2003 when rates hit 73%, but since then a new trend has emerged in the UK property market that looks set to overtake homeownership in the next decade.

Rising costs threaten SE offices

Rising costs threaten SE offices

Rocketing costs for refurbishing or building a new office block in the South East are outpacing rental returns and threatening spec building.

As an aside to the article, this is also impacting on the viability of office to resi conversions under permitted development.

See the full article here.

Birmingham, forget the northern powerhouse

Birmingham, forget the northern powerhouse

Birmingham needs to “forget about the northern powerhouse”, EG’s Question Time event in the city was told last night.

Citibase chief executive Steve Jude told the 150-strong crowd who attended the debate, at the Studio in Cannon Street, that Birmingham is a formidable city in its own right.

Jude said, with the redevelopment of New Street station and the relocation of HSBC’s head office from London, Birmingham could genuinely be considered the second city ahead of its northern rivals.

He said: “The northern powerhouse is a fantastic brand, which happens to be in George Osborne’s constituency, but I am not sure what is actually going to be delivered. Birmingham has got it all going on already, but it’s not branded well.

Carol Coombes OBE, chief executive of Cracking Leadership, said: “I agree with Steve, we’ve got to do something about spreading the message. Birmingham has had many successes of its own. I work globally and for a bit of fun I ask people what car they think the city is. Every time it’s a Skoda, because it has a bad reputation but when you get in you think, ‘Wow! I didn’t know it did this.’”

Birmingham City Council leader John Clancy said: “Birmingham is the most investible city in the UK and the sixth in Europe. Birmingham is ready to take off and we will match Manchester and overtake it.”

The event was chaired by EG editor Damian Wild and panellists also included Duncan Sutherland, regeneration director at Sigma Capital Group; Andy Mielczarek, head of distribution UK at HSBC; Barry Allen, head of Savills’ Birmingham office; and Michael Whatley, real estate partner at Mills & Reeve.

Question Time was held in partnership with Savills, Mills & Reeve and Conveyancing Risk Solutions.

For a full write-up of the event see next week’s Estates Gazette.

Record foreign investment in UK commercial property, but it is slowing?

Record foreign investment in UK commercial property, but it is slowing?

Last year saw record foreign investment in UK commercial property but a sharp slowdown in the second half of the year will make 2016 more of a challenge, a new analysis suggests.

Some £67.5 billion was invested in UK commercial real estate in 2015, a 5% decrease on the record of £70.7 billion invested in 2014, making it the second strongest year on record and 46% above the 10 year average, according to the latest research from CoStar Group, a commercial property information provider.

omentum slowed sharply in the second half of the year, with investment down 19% from the previous year. The firm says that this reflects the fact that investment activity has been especially strong over the previous 18 months and good opportunities are harder to find, but also that increasing global economic and political uncertainty is impacting investment decisions. 

Nevertheless, 2015 was a strong year for the UK's big six regional cities. Office investment increased 16% to £3.2 billion, which is the highest level since the recession and more than double the eight year average. Foreign investors seeking standing assets and development opportunities underpinned much of this investment.

Foreign investment into the UK totalled a record £27.8 billion in 2015 a 6% increase on 2014’s £26.2 billion. International capital accounted for 45% of the total volume of transactions, with investment into the UK being spearheaded by the US with a total of £11 billion.

But the report shows that investment into UK commercial real estate from the Middle East dropped dramatically by 62% to £1.6 billion, the lowest level since 2012, and it says that this is largely attributed to the collapse in oil prices and the political uncertainty in the region.

In contrast, Far Eastern investment increased by 62% in 2015 to £6.4 billion as investors from Singapore and Hong Kong in particular flocked to the relative safe haven of the UK.

‘Despite it being a record year for international capital investing in UK commercial property, we have started to see signs that the market is slowing down. Total investment in the second half of 2015 was down 19% compared to the second half of 2014,’ said Richard Yorke, director of market analytics at CoStar.

‘With 2016 beginning with severe stock market volatility, heightened worries about China’s economy, falling oil and other commodity prices, and uncertainty about the UK’s place in the European Union, total investment may continue to ebb,’ he added.

The report also shows that demand for alternative assets such as hotels and students accommodation rose strongly in 2015. A sum of £5.5 billion was spent on hotels in 2015, a 47% increase on 2014 making it the strongest year ever. In addition, £4.3 billion was invested in student accommodation, more than double the level invested in 2014 and the strongest year on record.

In terms of sector, offices dominated with £29.5 billion spent although this was a 5% drop from 2014. Overall, the three main property types, offices, retail, and industrial all experienced lower volumes, with the proportion of investment going into the retail sector well down on the eight year average.

On a region by region basis outside London, the South East and North West were the biggest recipients of foreign inflow with £1.4 billion and £0.8 billion invested respectively, with foreign investment in both regions trebling year on year.

In terms of overall volumes, the North East experienced the biggest annual increase at 32% with Wales up by 20%. In contrast, investment into Scotland fell by 41%.

‘2015 has been a buoyant year for UK commercial property investment. Yields have come in sharply making property increasingly expensive and difficult for investors to find value, especially in London where several key deals fell out of bed in the latter months of 2015 resulting in lower investment levels,’ said Yorke.

‘In addition, the increasing global economic headwinds will likely impact investment, especially that originating from oil and commodity exporting nations. However, as the data shows, the UK still remains a highly attractive place for commercial property investment. Its scale and liquidity is hard to match,’ he pointed out.

‘Although 2016 is likely to be a more challenging year, our clients report that investors will continue to target new opportunities in the big six and other regional cities,’ he added.

From PropertyWire.



Buy-to-let investors 'to sell 500,000 properties' as confidence plummets

Buy-to-let investors 'to sell 500,000 properties' as confidence plummets

Landlord trade body predicts major sell-off as tax changes cause investors to quit the market.

Landlords will sell 500,000 properties in the next 12 months, according to new research from buy-to-let investor trade body the National Landlords Association (NLA).

It says landlord confidence is at its lowest ebb since the dark days of the banking crisis.

The proportion of landlords looking to sell in the next 12 months has more than doubled since July 2015.

The sudden pessimism follows George Osborne’s double-whammy tax attack on the sector. In his July Budget he announced the removal of landlords' mortgage interest tax relief which, when fully implemented in 2020-21, will mean some landlords pay tax on zero income or even on losses.

And in November he announced that landlords would pay a 3pc stamp duty surcharge, coming in from this April.

Mr Osbornes said the policies were aimed at "creating a level playing field" in Britain's under-supplied property market.

They come alongside a raft of Help to Buy products intended to make it easier to buy with a smaller deposit.

However, the Chancellor’s plans have been met with significant controversy, even from within his own party.

Part of that controversy stems from the fact that companies holding more than 15 properties look set to avoid many of the penalties.

The matter is also set to be tested in the courts, in a judical review being planned and led by Cherie Blair QC.

Resentment is strongest among smaller landlords, as they do not believe they are part of the problem the policies are designed to tackle.

Additionally, there are groups who will be inadvertently caught out by the stamp duty changes, with cash-poor parents trying to help their children and those with homes abroad facing higher stamp duty charges.

Many also predict that rents will rise as landlords seek to pass on the costs.

The NLA research projects a further sell off of 100,000 properties a year after the initial 500,000, significantly shrinking the private rental sector.

Further research by property crowdfunding platform the House Crowd, released exclusively to the Telegraph today, supports this gloomy sentiment, with 20pc of investors surveyed planning to sell their buy-to-let properties in 2016.

The research also found that nearly half of investors feel the Government is trying to squeeze out smaller landlords while protecting wealthy landlords with many properties.

Richard Lambert, chief executive officer of the NLA said: “Up to half a million properties could come onto the market as a result of the Summer Budget and Autumn Statement, which the Chancellor will no doubt deem a success.

“We’ve always said that Mr Osborne is blinded to the impact of his decisions by his commitment to homeownership."

“He may have intended to focus on the small-scale part-time investor, but it’s the larger and more professional landlords who will be hit worst by cuts to mortgage tax relief and increases to stamp duty, and who appear most likely to leave the sector.”

Mr Lambert added that landlords are more likely to offload less desirable stock, rather than the one or two bedroom properties that will appeal to first time buyers.

“What happens to the people these landlords house if they still can’t buy and there are fewer and fewer properties available to rent?” he said.

Andrew Montlake, director at Coreco, the mortgage broker, said: “Whilst we will undoubtedly see a number of landlords begin to sell up, this looks as if it will be mainly amateur landlords and we have yet to see a massive rush to dump property from our landlord clients.

“I suspect many professional and larger scale landlords will still continue to buy, albeit at a slower more considered pace."

According to Mr Montlake the property market does need to have "some balance restored", and the lessening of competition from landlords "will free up much needed stock for first time buyers".

However, he said: “The Government needs to be careful not to go too far as the private rental sector still plays an important part in the housing market as a whole and a vast reduction in the numbers of available properties to rent can cause as many problems as they try to solve.”

Read the article in The Telegraph.

Private rental prices grew by 2.7% in England in 2015

Private rental prices grew by 2.7% in England in 2015

Office for National Statistics

The Index of Private Housing Rental Prices

Main findings  

  • Private rental prices paid by tenants in Great Britain rose by 2.5% in the 12 months to December 2015.
  • Private rental prices grew by 2.7% in England, 0.7% in Wales and 0.9% in Scotland in the 12 months to December 2015.
  • Rental prices increased in all the English regions over the year to December 2015, with rental prices increasing the most in London (3.9%).

Index of Private Housing Rental Prices, October to December 2015

UK seeing a crisis in private rented sector due to tumble in landlord confidence

UK seeing a crisis in private rented sector due to tumble in landlord confidence

Landlords’ confidence in the buy to let sector in the UK has collapsed to an all-time low and is now worse than levels witnessed during the financial crash, according to the country’s biggest landlord association.

Richard Lambert, chief executive officer of the National Landlords Association (NLA), told delegates at the Building Societies Association’s (BSA) annual meeting for mortgage professionals that the situation is worrying.

He explained that confidence in landlords’ business expectations has tumbled by more than a third over the past year, down from 67% to an all-time low of 43% and the current level of confidence in the sector is now 5% lower than levels witnessed after the financial crash in 2007. 

He pointed out that the actions taken by the Chancellor in last year’s Summer Budget and Autumn Statements has led the NLA to reverse its previous prediction of the continued growth of the private rented sector (PRS) by another million more households over the next five years. 

It now forecasts that, if landlords follow through on their intentions, there will be a dramatic sell-off of 500,000 properties in the next 12 months, followed by another 100,000 sold each year to 2021. The net effect will be that the PRS be smaller by up to 136,000 properties.

The data, from the latest NLA quarterly landlord panel survey, also shows that the proportion of landlords looking to sell in next 12 months has more than doubled since July 2015, up from 7% to 19%.

Over the next few years some 28% of landlords don’t plan purchase any more properties, 10% plan to reduce their portfolio and 5% plan to sell up completely.

‘Two speeches from the Chancellor in 2015 have led to a crisis in confidence greater than when all but a few buy to le products were immediately withdrawn from the market following the 2007 financial crash,’ Lambert said.

‘Up to half a million properties could come onto the market as a result of the Summer Budget and Autumn Statement, which the Chancellor will no doubt deem a success. But there is no guarantee that these will be the one or two bedroom flats or small houses that will appeal to first time buyers, especially as landlords are more likely to offload less desirable stock in less desirable areas,’ he explained.

‘We’ve always said that Mr Osborne is blinded to the impact of his decisions by his commitment to homeownership. He may have intended to focus on the small scale part time investor, but it’s the larger and more professional landlords who will be hit worst by cuts to mortgage tax relief and increases to stamp duty, and who appear most likely to leave the sector,’ Lambert told the meeting.

‘What happens to the people these landlords house if they still can’t buy and there are fewer and fewer properties available to rent?’ he added.

Read article.

No end to rising demand for rented homes

No end to rising demand for rented homes

Demand for rented homes will rise by more than one million households over the next five years despite government measures to help ‘generation rent’ become ‘generation buy’, according to new analysis from real estate adviser Savills.

The Government has a target of building 400,000 new affordable homes for sale over the course of this parliament, but we will still require an additional 220,000* homes for rent a year, the firm says.

Policy will curb some of the demand for rented homes, but demand is such that researchers at Savills forecast that the sector will grow by 1.1 million households by 2021, even assuming the 400,000 homes target is reached, the firm says in Rental Britain, published today.

The economic recovery and ongoing low interest rate environment have done little to reverse the growing need for rented housing. Rather, house price inflation ahead of wage growth has served to push homeownership further out of reach for many, at a time when stock in the social rented sector has actually shrunk (by 2.8% in the past five years), pushing more households into private renting.

According to the English Housing Survey, private renting has been growing by a staggering 17,500 households per month on average over the 10 years to 2014. Government housing policy, including Starter Homes, a greater number of Shared Ownership homes and access to larger equity loans through Help to Buy London, seeks to reverse this trend by helping people access the property ladder.

“But demand for rented homes could still rise more sharply than we have forecast,” says Susan Emmett, director, Savills residential research. “We would question whether policies can accelerate housebuilding enough to see the Government’s target of 400,000 affordable homes for sale reached in the timescale set. And given the overlap between the different schemes, each focused at similar parts of the market, it is possible that one scheme could simply replace the other rather than providing additional homes.

“This analysis demonstrates that we still need to provide a substantial number of homes for rent. Government policy should focus on supporting the development of new homes to rent as well as to buy.”

Instead, as the need for rented homes grows, so recent policy announcements are set to constrain the supply of rental homes. The introduction of a stamp duty surcharge of 3% on buy-to-let properties and the restriction on tax relief on mortgage interest payments are likely to limit the ability of private investors to expand their portfolios.

This presents a major opportunity for large scale institutional investors to step into the gap, with expectations that they will remain exempt from the tax changes and become increasingly attractive sources of bulk finance for developers.

Investors are looking both in London and beyond to cities with high and growing concentrations of households in the private rented sector. The Savills investment matrix highlights Manchester, Reading, Edinburgh and Bristol as top-rated targets for investors.

Read the full report here.

* Assumptions:
The Government has set a target of building 400,000 new affordable homes for sale over the course of this parliament. If reached this would enable an average of 80,000 new households a year to access homeownership over the next five years. Of these, Savills estimates that some 40,000 are likely to come from the private rented sector with the balance shifting out of other sub-market tenures. This would reduce the growth in private renting by just 15 per cent, from 260,000 households a year to 220,000.

Where will property investment thrive in 2016?

Where will property investment thrive in 2016?

This year is primed to be a seminal one for property, with the private rented sector building further momentum and regional cities across the UK stealing the limelight (and highest yields) from London.

What can we expect from 2016?

According to Select Property Group, there is no expectation that supply will even come close to fulfilling demand as we enter 2016, resulting in projected average house prices increases of £17,000 nationwide. Following a £20,000 increase in 2015 this demonstrates the ongoing value in the UK property market. In certain regions there will be exceptions and the stable growth will be good news for investors. In the first quarter of 2016 there will be a phenomenal uptake in purchases, with those looking to buy before the new stamp duty that comes into effect in April. Stamp duty will affect the London property market hardest, which will further expedite the outflow of capital from London to the regions. 

How is London expected to fare this year?

 London hasn’t been the ideal locale for investors to purchase property for a while, and in 2016 this is set to continue. Increasing house prices and corresponding taxes will eat away at yields, leaving little value left in the capital. Returns from prime London locations, such as Kensington and Chelsea, currently stand at 2.7% but 2016 could see them fall dangerously close to a disappointing 2%. That’s not to say the UK will slip into a property purgatory – far from it, with investors instead finding value across regional cities.

Where should investors look for great value and opportunities in the UK market?

Purpose-built opportunities that cater to a specific demographic, from students to young professionals, will increasingly evolve and become more refined in 2016. By taking into account the needs of the respective demographic, purpose-built accommodation will offer a product that appeals to tenants far beyond any other in the private rented sector and directly targets their specific needs. By assuring premium quality compared to other rental properties on the market, purpose-built accommodation will attract consistently high demand, which in turn will equal sustainably high yields.

Is there a particular city standout?

 Strong jobs markets found in cities such as Manchester will attract both young professionals and businesses northward. It is no coincidence that the northern city boasted both the highest yields (>7%) and fastest job growth in the whole UK in 2015, offering investors exceptional value that will only increase in 2016 and for the coming decade. Government-backed long-term plans revolving around the Northern Powerhouse will encourage the economy and improve connectivity with other major UK cities, leaving Manchester primed to begin a prolonged and profitable growth curve.

How will the private rented sector evolve in 2016?

The private rented sector will increase in popularity as flexibility continues to be an invaluable asset to a generation of young professionals who don’t view homeownership as a priority. More than 1 in 5 properties will be part of the PRS by the end of the year, a trend that will define the next decade. As the PRS continues to grow it will be home to increasingly diverse demographics, with a growing number choosing to see renting as a lifestyle, reflected in the average length of a tenancy increasing to over two years.


Demand for private rented sector accommodation to rise

Demand for private rented sector accommodation to rise

According to Savills, the two issues of mortgage regulation and interest rates will impact on people's ability to access the housing market. Despite a series of government policies focused on boosting housebuilding and homeownership, they expect levels of demand for private rented sector accommodation to continue to rise.

They say the recent stamp duty changes and the restriction in the tax relief given to mortgaged buy to let investors are likely to limit the ability of this group to extend their portfolios to meet this demand. This may add to the upward pressure on private rents. It is also likely to result in a shift in the focus of this type of investor towards higher yielding sectors of the market, though not those which are heavily dependent on welfare payments.

Read the full report.