While the ultimate costs do vary from market to market, there is no doubt that significant transaction costs are impacting the attractions of some property markets around the world. On the surface stamp duty and other headline costs may seem fairly minimal but once you take into account long term property taxes, vat, legal fees, listing fees, etc it does start to build up. Unfortunately many governments around the world, including the UK authorities, have actually increased transaction costs over the last few years as a means of filling budget black holes brought about as a consequence of difficult economic times.
Would lower transaction costs attract more investors to mainland Europe? Is it time to encourage investors to hoover up the final batch of repossessed properties from the 2008 downturn?
Low interest rates are not working
When interest rates around the world were reduced in light of the 2008 worldwide economic collapse, the immediate impact was there for all to see. Finance costs fell dramatically, real returns were enhanced due to relatively low inflation, but over the last couple of years investors have become used to low interest rates. While there is slight margin for further reductions in due course the major impact of low interest rates has been and gone.
Even though low finance costs are still encouraging some support for property markets (to a lesser extent) is it time for the authorities to introduce another incentive?
You only need to look at economies around the world to see the correlation with property markets. Even though some property markets across Europe, such as the UK, have performed admirably during these difficult times it has been difficult for countries such as Spain. Mounting debt from property repossessions, growing unemployment figures and a difficult property market have not exactly created an environment in which corporate investment is rife.
Members of the propertyforum .com have also been commenting on the relatively high property transaction costs in Spain with some quoting figures of 14%. The fact that 14% of your initial investment is going on the cost of buying a property, ignoring long-term finance costs, is a bitter pill to swallow for many people. The simple fact is that for 99% of the general public their greatest investment will be their home but with the economy struggling, unemployment up and 14% transaction costs, this is not exactly incentivising investors?
Have governments milked the market for too long?
We only need to look at the UK government which has dramatically increased the cost of investment in the UK property market over the last decade. There have been times when the authorities incentivised investors, with historically low interest rates, but we only need to look at the buy to let/second home market to see an example of increased charges. Early this year we saw a significant wave of overinvestment in the buy to let sector as investors looked to avoid a stamp duty increase in April. This does not help the market, this does not help long-term growth and it certainly does not give the impression that the UK property market is “open for business”.
Only a few days ago we had the Scottish government discussing an increase in local council taxes based upon the value of property. If they’re looking to encourage investment in Scottish property in the longer term there is this really the right way to go about it?
When you bear in mind the growing number of people renting property around the world it is these tenants who will eventually foot the bill for ever increasing property transaction charges. The less money they have in their pockets the less chance of being able to buy a property outright which pushes more towards rental, feeds into the buy to let market, pushing prices higher.
Even though it is obvious that governments around the world are struggling to balance their budgets, surely now is the time to give a little back to the property market instead of milking this cash cow until it is dry?