WELCOME TO INVEST & DEVELOP: PROPERTY UPDATE BREAKFAST
Ian Warren Senior Lending Manager NatWest London & South East Region 1 2 www.emwllp.com
Stamp duty changes BREXIT Building Regulations Declining High Streets EPC’s Listed Property New Tax Laws Slow Property Sales Planning Rules Exchange Rates Declining overseas investors Access to Funding Health & Safety Regulation Benefits Cap B2L Mortgage Regulation FCA Governance Rent Arrears Interest Rate Rises Valuations 3 1
How to approach a lender Consider Location/Asset Quality Consider Tenant Quality Financial Information Track Record/Experience 1 4
Where to get funds Two Key Sectors Development Funding and Property Investment Development • Traditional bank lending • Crowd funding • Bridging Loans • Specialised Development Banks 5 1
Property Investment • Residential • Commercial • B2L Mortgages • Traditional Banks • Traditional Banks • Alternative funders • Alternative funders • Bridging loans • Bridging Loans 6 1
How can we help you? We have 40 dedicated and accredited Real Estate Managers • providing local knowledge of markets, demand and projects that may effect your proposal. Experience within the sector, we know what we require and • provide realistic guidance and assessment on what we can support. Fixed or Variable rate lending offerings. Fixed rate option with • no penalty for early repayment or lump sum reductions. Interest only loan options for up to 5 years subject to • portfolio Ongoing relationship management and direct contact – we • are not a transactional lender. 7 1
What next? Why not speak to one of my REF Manager colleagues or myself after the event and let us discuss your plans and needs. I promise we will be honest and if we can’t help, let you know where to go to for support . Thank you for your time and attention. 8 1
LONDON BUY-TO-LET VOLU- _ TION SPRING 2017
02 / 20 STEPHEN LONDON’S LUDLOW BUY-TO-LET AGENT EXECUTIVE COMPLETING CHAIRMAN MORE THAN – 40,000 TENANCIES stephenl@ludlowthompson.com OVER 20-YEARS
03 / 20 3.75% THE PER MARKET ANNUM GROSS OPPORTUNITY YIELD – ACHIEVABLE • Targeting key locations within Greater London’s commuter network. ON • Limited long term supply of residential property in London. AVERAGE • Demographic changes are driving London rental demand. • Significant capital investment is improving London’s transport links.
04 / 20 LONDON’S UNPRECEDENTED POPULATION GROWTH
05 / 20 LONDON’S EMPLOYMENT GROWTH – • Population grew by 800,000 between 2000-2012 • ludlowthompson saw rent increases of 3–4% matching CPI & wage inflation • Population growth = rental growth • GLA suggest 11% population growth by 2023 • 300,000 new jobs by 2020
06 / 20 A BALANCED VIEW OF BREXIT – PMs Objectives + Continue to attract the brightest and the best + Seeking a reciprocal deal on residency rights Versus - Impact on currency - Inflationary pressures - Real fall in wages - Falling rents - Rising Interest rates
07 / 20 BREXIT STRATEGY – • Long term tenancies + Provide hedge against inflation + Drive higher net yield • Fixed-rate mortgages + Visible net revenues + Provide hedge against rising base rate
08 / 20 LONDON’S ECONOMY OUTPERFORMS REGIONAL EMPLOYMENT REGIONS GROWTH – Median hourly earnings • London – £15.70 • UK – £11.21 SOUTH WEST 0.0%
09 / 20 SUPPLY & DEMAND – 2016 MSCI Total Returns • Inner London 8.3% • South West Midlands & Wales 5% • Ludlowthompson recorded 10.1% total returns since 1999 • Out-performing other assets on a HOUSE risk adjusted return basis over 16 years AFFORDABILITY – 60–70% 40–50% 50–60% 30–40%
10 / 20 THE SUPPLY EFFECT 2015-16 & DEMAND LONDON – RENTS London Mayor New Homes targets; GREW 2.5% 26,000 90,000 2016 2022
11 / 20 £8.5 BILLION TRANSPORT & CAPITAL INFRASTRUCTURE REVOLUTION TARGETED BY 2022 – • Overground extension • DLR improvements • Crossrail • Cycle super highways • Public/Private Capital Infrastructure projects • 24-hour Tube lines from August 2016
12 / 20 OUR CREDENTIALS 03 02 Offjces in all signifjcant BTL neighbourhoods 04 05 Where we trade... 01 11 – 06 Majority target properties 07 08 10 Significant target properties Minority target properties 09 Outside target market
13 / 20 2016 Q4 OUR MARKET AVERAGE CREDENTIALS 8.3% MARKET AVERAGE 22 DAYS – • 95% of our properties are occupied • Record-low industry arrears – less than 1.5%! • 22% Gross / Net Yields • Long term tenancies deliver 0.5 % higher net returns • ludlowthompson average 26 months ludlowthompson ludlowthompson 5 DAYS > 1.5% ARREARS VOIDS
14 / 20 • Advertise property online and conduct viewings OUR • Organise tenant reference and contracts • Oversee tenant move-in SERVICES • Collect rent and pay Landlord by BACS RENT • Online portfolio management • Check-in and check-out management COLLECTION • Photographic report • Management of deposit • Serving and interpreting of legal notices • Legal and rental warranty • Right to rent checks
15 / 20 • Rent collection service OUR • Handle all tenant enquiries • Landlord complete anonymity SERVICES • Provide a full maintenance service • Qualified and certified contractors FULL • Conduct regular property inspectors and reports MANAGMENT • Regulated Agent – ARLA/Ombudsman/London Rental Standard
16 / 20 NEW BUILD – BALTIMORE TOWER CROSSHARBOUR E14 £675,000 – £1,800 pcm Yield 3.2%
17 / 20 CONTEMPORARY NEW BUILD – ELITE HOUSE TOOTING SW17 £425,000 – £1,350 pcm Yield 3.8%
18 / 20 PERIOD PROPERTY – RICHBORNE TERRACE OVAL SW8 £475,000 – £1,400 pcm Yield 3.5%
19 / 20 EX LOCAL AUTHORITY – ELMSLIE POINT LEOPOLD STREET E3 £335,000 – £1,400 pcm Yield 5.1%
20 / 20
Property Tax Thomas Adcock, Tax Partner at CBW April 2017
Property tax The taxation of UK property is heavily dependant on what is being done with that property - Investments vs trading - Development - Construction
Property lifecycle Three main stages: 1) Acquisition of property 2) Ownership 3) Disposal (sale)
Acquisition When we buy a property we pay Stamp Duty Land Tax (SDLT), from 0% to 12% However: - Buying an additional property – additional 3% on the purchase price - Corporate acquisition of residential property with a value in excess of £500,000 – 15% flat rate
Stamp Duty Land Tax (SDLT) Residential SDLT rates: Residential property or lease premium or transfer value SDLT rate Up to £125,000 0% The next £125,000 (the portion from £125,001 to £250,000) 2% Reduced rate for: The next £675,000 (the portion from £250,001 to £925,000) 5% - Six or more dwellings in one transaction, or The next £575,000 (the portion from £925,001 to £1.5 million) 10% - For non-residential or mixed The remaining amount (the portion above £1.5 million) 12% use Non-residential (commercial) SDLT rates: Non-residential property or lease premium or transfer value SDLT rate Up to £150,000 0% The next £100,000 (the portion from £150,001 to £250,000) 2% The remaining amount (the portion above £250,000) 5%
Taxes involved in property ownership Two main taxes involved when owning a property: 1) Corporation Tax (19%) vs Income Tax (47%) 2) VAT
Ownership Investment property - Pay Income Tax and Corporation Tax on rental profits - Income Tax only – restriction on interest relief for higher rate tax payers Accounts Old rules New rules Tax calculation Old rules New rules Annual Gross Rental 30,000 30,000 Profit per 18,000 18,000 Receipts accounts Add: mortgage 10,000 Expenses 2,000 2,000 interest Mortgage interest 10,000 10,000 18,000 28,000 (12,000) (12,000) Income Tax 7,200 11,200 Net profit before tax 18,000 18,0000 (40%) Income Tax (7,200) (9,200) Tax reducer for (2,000) interest (20%) Profit after tax 10,800 8,800 Capital repayments (10,000) (10,000) Total tax due 7,200 9,200 Net annual cash position 800 (1,200)
Corporate ownership Why use them: - Liability protection - Financing - Tax Tax benefits: - Corporation tax benefit – current rate 19% and falling to 17% - Full interest relief (even if intention is to let) - Can sell shares - SDLT benefits for buyer and potential Capital Gains Tax (CGT) advantages for seller - Non-residence – no tax? – NRCGT, ATED CGT, anti-avoidance
Incorporating rental business - CGT on deemed disposal on incorporation – incorporation relief due in limited circumstances - SDLT on market value on incorporation even when no consideration paid – however, full relief from SDLT due where partnership incorporates - Pre-transaction clearance not available from HMRC
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