There is much concern in the property market amid signs that the UK government appears to be treating property investors with disdain. Yesterday’s budget had nothing of real substance for UK property investors, aside from a lifetime ISA and tinkering around the edges, with the final straw being the exemption of residential property from capital gains tax reductions. So, why is George Osborne seemingly intent on antagonising property investors?
It is well-known that George Osborne believes he should be the next leader of the Conservative party and the next prime minister of the United Kingdom. While Boris Johnson may have something to say about that there is no doubt that George Osborne is a leading front-runner. Yesterday’s budget was overly political with mentions of Brexit and Scottish independence wavering from the normal budget based speech. Whether he is trying to show voters that he has no favourites, with the Conservative party often seen as a party for business, or he truly believes the property market can accommodate his changes remains to be seen.
UK housing problem
Property market observers have been commenting upon the U.K.’s lack of newbuilds for what seems like decades now. Time after time governments promise additional capital, more houses and more affordable properties but very few deliver. Each year that passes leaves the UK new build sector further and further behind what is needed to maintain current demand let alone pent-up demand.
Recent changes to the buy to let market have not gone down well with investors and yesterday’s exemption from the capital gains tax reduction was the final blow for many. Many investors feel as if they have been treated like lepers and are seen as easy prey for the popular political elite.
Investors have long memories
All successful investors work on cold hard facts but George Osborne must remember they have very long memories. Property investors will take the recent and forthcoming changes on the chin, they will recalculate their figures and risk profiles and take it from there. Property investment markets will find a level, they will adjust to the recent changes but it does seem as though the ever-increasing cost burden on the side of investors/landlords will reduce short to medium term returns.
At some point in the future the UK government, whichever party it is, will come cap in-hand to the private finance sector (as they did with PFI). Will the private investment sector be as flexible as it has been in years gone by? Will investors look to squeeze every last penny out of the government? Will they use their position for leverage in the future in relation to the ever increasing tax burden?
It is difficult to understand why George Osborne has targeted the property investment sector with an array of changes. This is an area of the investment market which has been extremely important for the UK government helping to fill financial gaps in housing budgets. The relationship between property investors and the UK government is stretched at this moment in time but is it recoverable?