What are the most fundamental recent changes within the real estate landscape in the UK?
The government has made it clear that it will do everything in its power to support home ownership. As a result, there has been a wave of new policies hitting landlords. These include new deposit regulations and penalties, landlord licensing, HMO regulations, and right to rent requirements. Then you have the tax changes – new higher rates of Stamp Duty Land Tax (SDLT) for second homes, coming into effect in April, and the removal of mortgage interest payments as a deductible on income tax, which is being brought through next April. All of this is making it less profitable and riskier to be a private landlord. This has been accompanied by the extension of Help to Buy and the new Help to Buy London, launching this month, which allows owner occupier buyers with a 5% deposit to benefit from a government backed equity loan worth up to 40% of the purchase price.
For us as a company, permitted development rights for office to resi conversions being made permanent has been fundamental, but local authorities have also been given new powers, Article 4 exemptions, to restrict conversions in certain business districts. We have a number of schemes in Croydon town centre that we won’t be able to repeat because of the Article 4s.
How do you see the upcoming stamp duty hike effecting the rate of growth in the sector?
The higher rates of SDLT in isolation is not a huge problem. Long term investors will get over it. The fact that it’s coupled with the changes to income tax rules and stricter lending criteria for buy to let mortgages will, in our view, significantly impact growth of the sector.
Buy to let landlords represent some £2tn and if we lose their support, the rental market could be damaged severely. The government is supporting Build to Rent (developers building purpose-built schemes for private rent), but with current appetite amongst institutional investors, the sector is only expected to be worth around £30bn, which won’t be nearly enough to plug the gap. We think these policies are likely to hold back new supply and add to the upward price pressures that the government are trying to alleviate.
Can real value still be found in London? Or do the regions hold the key?
Central London, no. Not unless the government relaxes space standards. This debate is currently underway in New York City where they have piloted a micro-apartment scheme, Carmel Place, where smaller apartments are offered at much lower prices than other new-build in the city.
We have been doing something similar in London for some time now, taking advantage of new permitted development rights, which allow offices to be converted to residential without the need for planning permission. Currently, space standards do not apply to converted buildings so we have been able to offer smaller apartments that are affordable to buyers on average London salaries. We are also looking at ways to make renting more affordable. One idea we are exploring is student style shared living accommodation for graduates. Presently, non-students are not allowed to rent this type of accommodation – we want this changed.
That said, I do think value can still be found in outer London. Croydon, where we have several projects on the go, is still good value despite prices rises of more than 12% in the last year. There is also nearby Thorton Heath and Mitcham where you can pick up a three-bed house for around £400K. People talk about the regions taking the pressure off London but at the moment young people from all over the world want to live and work in London – you can’t force them to go elsewhere. Whether we like it or not, London’s population is going to grow – and quite significantly.
Which sub-sector are you most bullish about and why?
It has to be the owner occupier market, particularly for first-time buyers but also for family homes priced under £1m. This is where the demand is and where the market has been supported by government policy. Help to Buy and Help to Buy London are available to both first-time buyers and home movers where the purchase price of their new-build property is less than £600K.
What are you looking to achieve at British GRI?
We would like to meet developers from around the world. I’ve already mentioned that we have had our eye on New York; there are also developers building micro-apartments in Tokyo and other major cities. We would like to learn from them and share ideas. We are also interested in ways to deliver homes more affordably. Techniques like modular construction are relatively new in the UK and something we would like to talk about with overseas developers, contractors and suppliers.
Then there is the investment side. We are always looking for people, companies and institutions to invest in our developments. There is a lot of demand for our product, which is aimed at first-time buyers and renters who are crying out for a high quality home in the areas they want to live and at a price they can afford.