Assetz® News - Pre-Budget Report Needs To Major On Property Sector

Pre-Budget Report Needs To Major On Property Sector

21st November 2008 |

With so much of the economy underpinned by the health of the property sector we respectfully suggest the folowing are considered for the Pre-Budget Report :

The Chancellor must be bold and decisive in next week's pre-budget report, and make strides to bolster the property market and aid the start of an economic recovery in 2009. The Bank of England accepted last week that stability in property prices was far more important to the economy than they had previously thought.

There also needs to be some action taken on minimising repossessions in the housing sector. Whilst the government should not interfere directly with the Bank of England's independence and call for further base rate cuts that will be coming quickly anyway, it should focus on its control of the banks in which it has taken a stake. It should ensure that as the Bank of England base rate reduces to 2% or lower, banks continue to pass on the savings to the 50% or so of mortgage holders who are on tracker or variable rates. If the government was to get involved in forcing banks to lower the cost of mortgages or even subsidising all forms of mortgages with a reinstatement of MIRAS for the next year or two it would be far more effective than just a simple tax cut as it will directly benefit the housing sector which underpins the banks’ balance sheets and indeed the wealth of the country as a whole.

He should start by scrapping stamp duty tax for all residential properties until January 2010 - for 2011 the stamp duty should be half the present level and revert back to present levels in 2012. This would give a significant incentive to homebuyers to get back into the market next year and the gradual reversion to original rates would prevent a sudden stalling in housing market activity in January 2010.

Even if the Chancellor did not scrap the stamp duty entirely, he could take the opportunity to kick start the market by helping the property investment sector, with an easing of stamp duty tax rules for multiple property purchases. Currently, linked purchase transactions, such as an investor agreeing to buy four properties from a developer, are subject to stamp duty tax at 4% if the total purchase price is above £500,000, where the aggregate value is over £500,000, even if the individual properties are below the £500,000 threshold. A significant return of investors to the market would signal a turning point in the crisis and the start of the recovery.

We also call for the unfortunately timed empty property tax to be scrapped permanently. Imposing business rates on buildings that are vacant in the middle of a recession is highly inappropriate and given the slowdown in the property market it will lead to ‘bombsite Britain’ where developers like ourselves and many others flattened sites in city centres and left derelict for a long time before redevelopment. It is a tax too far for property owners struggling to find tenants and will only act to increase the number of distressed property sales in an already weak market.

The overhang of unsold houses built by developers needs to be eroded in order for house prices to stabilise. We would call for accelerated funding of housing associations that will assist them purchasing some of this stock from the developers for use as social housing – this will help to reduce housing stock that is unsold on the market and in turn help to support prices.

This news story has come from the property investment blog by Stuart Law, CEO Assetz plc.