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There's a window of opportunity that remains open for UAE investors wanting to buy in London. The opening up of the UK-UAE travel route will help that process. Image Credit: Agency

Dubai: Between now and April 1 will be crunch time for UK’s property market – and it’s got nothing to do with Brexit.

On March 31, the stamp duty relief on property purchases will cease, which is why it would make sense for UAE and Gulf investors to pick up real estate now rather than wait until after April 1. The UK Government had brought in temporary changes to the stamp duty structure to compensate for the hit the property market would otherwise have taken after the COVID-19 spread.

It did spark significant buying activity through the second-half of this year, so much so the UK real estate sector was probably the only standout performer as COVID-19 enveloped all other sectors.

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Time to pick up more

“For UAE buyers who look at purchasing UK properties at higher entry price points, the 15,000 pound stamp duty saving is perceived as an incentive rather than key a decision driver,” says an update on the UK real estate prospects from Core, the Dubai based consultancy. “However, together with the anticipated introduction of the non- UK resident surcharge due in April 2021, overseas buyers are expected to be increasingly active in prime markets in the short-term.”

Demand's spiking nicely
The number of new instructions in September "almost doubled" compared with last year, and was 38 per cent higher than the September average between 2010-19. This trend continues with October seeing the fourth consecutive monthly rise in under-offer volumes, according to Core.

Adds up to a bit

From April, the stamp duty land tax for all non-UK investors will add a further 2 per cent to the cost. That works op to be quite a bit, especially on the high-end transactions UAE and Gulf investors typically engage in.

UK property values are still down around 30 per cent from 2014 highs, and with Brexit uncertainties further muddying prospects. But where there’s uncertainty, there is always a chance for investors to pick up on bargains.

“Whilst travel restrictions have limited the opportunity for UAE buyers to physically view properties for most of 2020, significant demand has build-up on the back of a rise in enquires in early Q1-2020 following the UK’s elections results in December 2019,” the Core report notes.

“This is further compelled by a sense of urgency with the upcoming increase in purchasing costs for non-resident buyers and signs of recovery in the pound that had considerably weakened in recent years due to political and economic uncertainty.”

Quite a few clouds too

But real estate investment firm London Central Portfolio reckons that the sector’s momentum could be stalled by the government’s plan to increase capital gains tax. The firm estimates that this could set off a “negative trickle-down” effect on the whole economy, and cost it about 2 billion pounds.

There’s recent history to back up this warning. “Transactions slumped in Greater London by 25.08 per cent year-on-year following the introduction of higher rate stamp duty land tax (SDLT) in April 2016, hitting a low not seen since the Global Financial Crisis,” it states.

A government report, on the other hand, estimates that a higher capital gains tax would bring an “additional 14 billion pounds into the Exchequer and would include increasing the tax on the sale of all properties which are not the main home”.

But the report also cites concerns that “there would be significant behavioural effects, which would materially reduce this, including an impact on people’s willingness to dispose of assets and trigger a tax charge, increasing the extent to which Capital Gains Tax has a lock-in effect.”

There is no knowing which way the UK Government will turn. But for UAE investors eyeing London, the decision time is between now and March 31...

With the associated cost of purchasing UK property set to rise for non-resident buyers in Q2-2021 - coupled with the uncertainty of further tax changes potentially coming into effect - the current window represents an opportunity for UAE buyers who hold a long term view on the London market.

- Alex Casaki, Head of London Desk at CORE