Over the past year, EG has published the opinions of thousands of property professionals on the industry’s most crucial matters. In our latest round table, we press four pundits on key issues we can expect to come up for some time to come
The Budget
Julie Rees It’s all looking to the future and nothing for today. What I would have liked to see is the stamp duty, particularly on the domestic side of things, being reduced, as in excess of £2m. Maybe on that basis you can generate more refurbishment work or redevelopment work.
Nick Leslau I’m happy it was a benign budget, but I think stamp duty land tax hikes are coming and we have to be very careful at the high end of the market that we don’t scare off investors, who seem to be pariahs.
Residential
NL It’s curious that there is a boom going on in the house builder section. Presumably, along with the equity markets, certainly in the small and mid-cap sectors being at all-time highs, it’s a sign things down the road are better.
Liz Peace Are they actually going to build more houses though? The problem, from a social perspective in the UK is that we just haven’t got enough. Building high-end residential for investors may be good for one end of the economy, but it’s not actually going to help the housing situation. We need affordable homes.
NL That’s what section 106 is for. The more high-end development there is, the more that’s going into a pot to create key-worker accommodation, social housing and all the rest of it. It’s drinks all round.
Dark houses
LP The problem with overseas investment is people are buying and simply leaving it empty. That affects the communities you are trying to create.
NL Most of the properties that are bought overseas are in new developments, so it’s not like they are making old areas dark. What they build might become dark, but if these properties are being bought by overseas money because the pound is weak and London is a good place to be, then there could be a lot more rental properties.
LP I guess with changes to stamp duty an overseas investor buying at the higher end shouldn’t mind paying the amount they do for the privilege of living here.
NL But at what point do they stop affording it? I don’t think taxing because they can afford it is fundamentally fair. Why don’t we charge them on some legitimate basis, like an extra banding in council tax?
LP A form of mansion tax?
Tax
JV Maybe one of the side effects of the four, five, six years of recession that we have had in the industry is that, certainly in the good years, it was seen as an extremely easy target for SDLT.
NL Mansion tax is offensive. It’s done on wealth as opposed to consumption.
NL I would be much happier to see a more extensive banding up the capital gains tax. If you really want people to invest, you should have no CGT. If I invest for 10 years and employ lots of people I should pay no CGT. The person who buys or shorts a stock over 24 hours and makes millions of pounds should pay 90% tax, but if I’m a valuable member of society and creating wealth, creating jobs, creating employment, why should I pay CGT?
NL Where the government was smart was introducing REIT legislation, where it recognised because CGT was so punitive and gains accumulated over many years, that rather than wait forever to get those gains, if you converted to a REIT and you took out the CGT liability, then you paid money on the dividends and it works beautifully.
Technology, media, telecoms
JR The TMT sector seems to be the saviour of this industry at the moment in the central London market and it’s very good for the office market that the sector take-up in the City was 40% last year.
LP In the past, the ultimate was to get a large corporate to take your whole building on a 15-year lease, giving you a strong covenant. But now you end up with 30 small TMT businesses that want much shorter leases.
Jon Vivian There has got be flexibility, but interestingly, you have now got tenants competing for space that actually sat unused for a long time.
NL As a property asset manager I would much rather have multilet. You are not mono-dependent. If you have 20 tenants then you are always rolling.
Is the projection that London will be one of the biggest TMT hubs over the next few years realistic?
NL I am not denying this is all happening, but did you know the highest incidence of unemployment is among IT students? If that’s the case, why have we become the TMT epicentre of Europe?
LP We have always been very strong in IT, with the clusters around Cambridge, Oxford and the academic institutions in London. The corridor from Cambridge to London is filled with science parks.
LP And they are world leaders in IT.
NL I suspect the answer is because London is a very cool, very hip place to live.
NL If we start to tax overseas investors then we may very easily lose our TMT attraction because fiscally we become hostile.
The regions
NL There is a massive value trap. Outside of London you think a multilet office building in a secondary provincial location can be bought for a 15-16% yield.
But as those leases come up empty not only can you not relet them at the same rents, you can’t relet them at half the rents, you can’t relet them at any rents and the obsolescence factor suddenly turns your 15% positive into negative empty rates. This is essentially why people don’t go out there.
Plus, the cost of refurbishing an office floor in the regions is not that dissimilar to doing one in fringe London.
However, if industrial is the litmus test of what is happening, then the world is getting better. We have 7m sq ft around the country and vacancy rates are falling and rents are starting to raise back a little.
JV I think foreign investors only recognise London as a place to invest. Anything beyond London and they don’t really go there, but I can’t see how that is not going to continue, particularly as funds start to reinvest.
Biggest issues over the next 12 months
JR A lack of bank finance. The Budget hasn’t done anything to alleviate that position.
NL I don’t think cost has ever been the determinant of commercial property price inflation; it’s the availability of funds. But there are more and more entrants into the funding market overseas, insurance companies, domestic senior debt funds, junior debt funds, mezzanine funds and all of that.
LP It is always the economy. This is what you can’t ever forget with commercial property; you only build or invest in it because somebody wants it.
An empty building is not a frightfully good thing to have at the moment, but until the economy gets going, until we can start to see real growth again, then our industry is just going to be chugging along at that relatively low state near the bottom.
Watch the video of the debate
