Can online estate agencies disrupt an entrenched property industry?

Offline agents have for a long time dominated the real estate industry and led many people to believe that they are unshakable. The revolution on how people buy and sell property began like one and a half decades ago in the UK with the arrival of portals such as Right move. The big debate currently is on the effects of the entry of online estate agencies on entrenched property industry.

Availing of information

In a traditional setting, homeowners had limited information on the value of their property. The realtor can take advantage of the customer’s ignorance and charge high commissions for a home sale. The today’s buyer has access to information online which one can use to make vital decisions. Such a customer does not see the need to pay an agent to give information that is available on various websites for free.

Speed

Some properties take days while others take months to sell at the hands of realtors. There have been a lot of bureaucracies in the property when it comes to payment. The clients need agents who can link them to financiers with a loan calculator readily available to speed up the process. They can also use virtual home staging apps which illustrate the sale process. Some online agencies can take 48 hours to close a deal.

Fees

The commissions that traditional brokers charge are sometimes unrealistic and can take large amounts of one’s property. The market now has people with competitive and new pricing models which make the market leaders rethink their strategies. It is common to find free property valuation portals which potential customers use and thus save some money.

Control

Traditional Realtors have isolated buyers and sellers for a long time in the selling process. With current innovations, the seller has control of the process which makes it fulfilling. The customer can take virtual tours to the dream home so as to make informed decisions. The seller can also schedule for home viewing without inconveniencing any of the parties.

Outdated marketing techniques

Use of brochures and sign posts have little exposure and can take ages before you land a client. The modern customers use online platforms due to the convenience and this is also a trend in property markets.

The largest share of the property market is still in the hands of traditional real estate agents. There are daily innovations and digital disruptions that come with direct and indirect impacts on this sector. High street agents are now using a combination of direct customers and online classifieds to sell properties.

How Might the Chancellor’s Autumn Statement Affect Landlords?

The year 2016 has definitely been a turbulent one for Britons, especially landlords. The property market is still reeling from the result of the EU referendum in addition to some of the new changes made by former Chancellor, George Osborne.

In November’s Autumn Statement, Osborne proclaimed that from April 2016, people in England and Wales will be expected to pay a 3% surcharge on their stamp duty band. The extra charges will be used to raise an excess of £1 billion for the treasury by 2021. This wasn’t received happily by landlords. The other changes revealed by the Chancellor included a prolonged Help to Buy scheme in London, and more funds for the Starter Homes initiative.

Landlords in the UK expressed disappointment at the perceived indifference to their plight from the Chancellor’s office regarding the 3% surcharge. Many believe it would quash investment in buy-to-let property. According to a survey conducted by Towergate, 59.6% of UK adults agreed that the new increase in stamp duty will stop them from buying a second property to let.

How it affects landlords

The stamp duty surcharge raised each band by 3 per cent. This means that if a property has a value between £125,000 and £250,000, and the stamp duty is 2 per cent, landlords of buy-to-let properties will pay 5%. Hence, for the standard buy-to-let purchase of £184,000, prospective landlords will have to pay an extra £5,520. This charge is exempt for commercial property investors with more than 15 properties.

Owners of buy-to-let properties were also hit by changes in the rules of Capital Gains Tax (CGT). According to the new law, starting April 2019, landlords will be expected to pay any CGT that is due within 30 days of selling a property, instead of waiting until the end of the tax year.

In addition to this, landlords will get a reduced rate of tax relief. The chancellor announced that from 2017, they will only be able to claim the basic 20 per cent tax relief – a reduction from the previous 40 per cent – on their mortgage fees.

Already, the fallout of the announcement led banks and other mortgage lenders to increase their lending criteria for buy-to-let homes. In subsequent events following the Brexit result, the property market is currently experiencing a decline in growth of house prices. In reaction to this, some banks have decided to limit buy-to-let lending completely.

According to Richard Sharp, an authority in the Bank of England’s committee on financial policy, the decision by banks is to enable them study the property market carefully before resuming ‘aggressive lending’.

The demand of buy-to-let borrowing has fallen sharply since, no doubt as a result of the additional surcharge.

How landlords will react

Many landlords will likely increase their property rents in a bid to pass on the cost to their tenants. The result of a survey released earlier in the year showed that 40 per cent of landlords intend to increase their rents in the coming months. Three-quarters of that figure admitted that they would do so to offset the reduced tax relief.

Government Help Scheme

In a bid to encourage home ownership and reduce housing benefits bill, the Chancellor announced that funds will be injected into the starter homes scheme. Home builders will receive a 20 per cent discount on prices £450,000 and above in London, and £250,000 in other locations.

UK building rained off in August 2015

Output in the UK construction industry during August this year was estimated to have declined by 4.3% compared with July 2015 and was also down by 1.3% compared with August 2014, according to the Office for National Statistics (ONS) Output in the Construction Industry report for August 2015 released on Friday.

This first year-on-year fall in construction industry figures since May 2013 is said to be partly due to the inclement weather in Britain during August this year, as bricklayers are unable to work in very wet conditions.

The ONS Construction: Output & Employment survey also revealed that all work types reported decreases, with repair and maintenance (R&M) decreasing by 5.6% in August 2015 compared with July 2015 and new work falling by 3.6% over the same period.

UK construction output fell by 0.8% over the 3 months of June 2015 to August 2015 when compared with the previous 3 months of March 2015 to May 2015,  Repair and maintenance declined by 3.6%, however all new work increased by 0.7%. 

When comparing the June 2015 to August 2015 quarter with the same quarter of 2014, construction output was estimated to have increased by 1.8% and all new work increased by 5.6%, while repair and maintenance decreased by 4.6%.

The UK government reportedly plans to relax planning rules and has promises to build 200,000 affordable homes by 2020, with a Starter Homes scheme planned for England.

Under the Starter Homes scheme, properties must be offered for sale to first-time buyers under 40 years of age only. The homes must be priced at a discount of 20% below market rates, with a GBP450,000 maximum in London and GBP250,000 outside the capital. These buyers would be unable to sell the house for five years.

According to Sky News, critics of the Starter Homes project have suggested that the scheme risks stoking demand rather than desperately-needed supply which has been cited as a core reason for UK house prices continuing to creep up. Charities have argued that the Prime Minister’s demand to create a revolution from “generation rent to generation buy” is irresponsible and firms will look to reach the price limits, leaving the worse off without access to homes.

The construction industry has reportedly welcomed the relaxation of planning laws, but the sector admits that a lack of skilled labour is hampering output growth.

Barratt Developments’ final results indicate demand for new homes outstrips supply

UK residential property development company Barratt Developments plc released its full year financial results on Wednesday, which reveal continued growth in demand for new homes in Britain.

The company reported profit before tax of GBP565.5m for the full year ended 30 June 2015; an increase of 44.8% compared to GBP390.6m for the full year ended 30 June 2014. Basic earnings per share were GBP0.455 for the full year, up by 45.8% over basic earnings per share of GBP0.312 reported in 2014.

Barratt Developments revenue for FY15 increased by 19% to GBP3,759.5m, compared to GBP3,157.0m in the previous year.

Average private selling prices for Barratt homes, increased by 8.7% to GBP262,500 in the company’s FY15, in comparison to GBP241,600 in the previous fiscal year. This increase was reportedly driven by further changes in mix and house price inflation.

In addition, Barratt said it continued to secure good land opportunities and approved 16,956 plots for purchase, as well as maintaining a controlled land supply of 4.5 years.

David Thomas, Chief Executive of Barratt Developments PLC commented:

“The strong operational and financial performance in FY15 reinforces the progress we have made over the past few years. Alongside our industry leading management team, I will continue to execute on our current strategy and focus on driving further efficiencies across the business. The new financial year has started very well; we have a strong forward sales position and are making very good progress towards our FY17 targets of at least a 20% gross margin and at least a 25% return on capital employed.”

Richard Hunter, head of equities at Hargreaves Lansdown, was quoted by the BBC as saying: “Housebuilders find themselves in an extremely sweet spot at present and Barratt is no exception. A combination of low interest rates, a general lack of new housing supply, rising house prices and increased mortgage availability all play into its hands.”

Homes near top English state schools cost 13% more on average

New research from Lloyds Bank released on Friday indicates that average property prices in the postal districts of the top 30 state schools in England have now reached GBP344,446, an average GBP40,728, or 13%, higher than county averages of GBP303,738.

Lloyds Bank figures reveal that properties near the best performing state schools were valued at 9.2 times average gross annual earnings, which is reportedly significantly higher than the average across England of 7.7 times average gross annual earnings. Top schools are defined as those secondary schools that achieved the best GCSE results in 2014.

The banking company’s research found that the postal districts of a fifth of top state schools command a housing premium of over GBP125,000, when compared to surrounding areas. Parents of pupils who attend Beaconsfield High School in Beaconsfield pay the the largest premium for their homes, with properties selling at an average GBP636,132, which is 186% above the average house price of GBP342,166 in neighbouring locations.

House prices in the postal district of The Henrietta Barnett School in Barnet were the second highest, trading at a premium of GBP418,860, followed by St. Olave’s and St. Saviour’s Grammar School in Orpington with an average premium of GBP180,447, then the Tiffin schools in Kingston upon Thames at GBP137,665.

However, the research showed that not all top rated schools are located in expensive areas. Of England’s top 30 state schools, 16 are in locations with an average property price below the average in neighbouring areas. Homes in the postal district of Aylesbury High School trade at a discount of GBP122,506, compared to the county average of GBP342,166. The next largest house price discounts in cash terms, are in Reading, Berkshire, where Reading School and Kendrick School are located, at GBP119,485. The Reading schools are followed by Queen Elizabeth’s School in Barnet, at GBP95,681 and Westcliff High School for Boys Academy in Essex at GBP58,970. 

Andrew Mason, mortgages director at Lloyds Bank mortgages director, commented:”In general, homes close to the nation’s top performing state schools command a significant premium over neighbouring areas. The presence of a top performing state school appears to help support property values in many of these locations as parents compete with other buyers to land the property that gives their child the best possible chance to attend their chosen school.”

Buyer demand outstrips number of UK homes for sale during November

House prices in the UK are predicted to continue to rise in 2014, according to the Royal Institution of Chartered Surveyors (RICS), which released its UK Residential Market Survey on Monday.

The independent, representative professional body said that the amount of homes coming onto the UK market in November this year did not meet increasing buyer demand. A further 59% of chartered surveyors predicted that prices will continue an upward trend, rather than drop back over the coming three months. This is said to be the highest reading since September 1999, which indicates that the higher demand and lower supply is having an impact on the housing market.

According to the RICS, house prices picked up sharply in November 2013, with a net balance of 58% more respondents reporting price growth, up from 57% in October. Each region in the UK reportedly saw property prices rise for the second successive month. Some areas of the UK that are struggling, however the results of the RICS survey show that regional markets are now responding to government incentives and positive economic news.

Despite the lack of housing stock for sale, the number of property transactions is increasing and during the three months to November, the average number of homes sold per chartered surveyor amounted to 20.6, compared to the same period in 2012 when the survey respondents were selling just 15.9. The RICS added that a net balance of 76% of surveyors expect sales levels to increase in 2014.

Simon Rubinsohn, RICS Chief Economist, stated: “It’s no secret that the housing market is on the way up and prices are surging ahead in many parts of the country. The Bank of England’s recent decision to withdraw the Funding for Lending scheme – which allows banks to borrow more cheaply and pass the benefits on to mortgage applicants – could well have some impact on the number of people able to purchase a home. Although the improvement in wholesale and retail funding markets may mean the impact on mortgages is relatively limited.

“One thing we are very concerned about, however, is the lack of both new and existing homes coming on to the market. As the Chancellor pointed out last week, housebuilding is on the up, but it is rising nowhere near quickly enough to make up the shortfall that has built up in recent years. If there is not meaningful increase in new homes, the likelihood is that prices, and for that matter rents, will continue to push upwards making the cost of shelter ever more unaffordable.”

The RICS regulates property professionals and surveyors in the UK and other sovereign nations. Its members are Chartered Surveyors and are entitled to use MRICS after their names. The organisation also provides education and training standards, protects consumers with strict codes of practice and advises governments and business, as well as providing expertise in matters involving fixed assets, including but not limited to land and real property.

HMRC introduces new regulations to curb tax avoidance on high value residential properties

HM Revenue and Customs (HMRC) announced today that new regulations have been established to ensure the disclosure of schemes designed and marketed to avoid paying the Annual Tax on Enveloped Dwellings, which was introduced in April this year to counter avoidance of Stamp Duty Land Tax on UK residential properties valued over GBP2m.

Companies that own high value residential properties are now required to pay an annual charge to HMRC, the UK’s tax authority. For a property valued between GBP2m and GBP5m the tax per year is GBP15,000. The charges rise to GBP140,000 for properties valued at more than GBP20m.

The Disclosure of Tax Avoidance Schemes (DOTAS) will mean that users of schemes that provide an unfair tax advantage must provide details of those schemes to HMRC, which uses the information in its compliance work. Failure to report details of these tax avoidance schemes will result in penalties of up to GBP1m. Users who fail disclose the use of a scheme on a tax return will be fined GBP100 for the first failure, GBP500 for the second and GBP1,000 for subsequent failures.

The changes to DOTAS regulations mean that the Annual Tax on Enveloped Dwellings is added to the regime where current schemes designed to reduce a user’s tax bill for income tax, corporation tax, capital gains tax, inheritance tax, national insurance contributions, stamp duty land tax and VAT must be disclosed. HMRC said these new regulations build on the work from the 2012 Lifting the Lid consultation which looked at tackling avoidance schemes.

A further measures to stop tax avoidance also requires promoters of avoidance schemes to provide HMRC with details of their client’s national insurance number and unique taxpayer reference. The provision of these details will help HMRC to detect and investigate tax avoiders. It will also be more difficult to avoid paying tax by using ‘disguised remuneration’ schemes.

Exchequer Secretary David Gauke commented:

“This Government has been clear – aggressive tax avoidance is unacceptable and will not be tolerated. The regulations we are laying mark a significant strengthening of the rules and build on the considerable work we have done to tackle not only tax avoidance schemes but also the promoters of these schemes.”

Financial reasons to invest in London property

Residential property in London has attained a reputation as a safe asset class and as far as any investment is a safe bet, London property appears to be the place to invest with values outpacing all other investment types, and it’s not just the case in the more affluent areas of London like Kensington and Chelsea or Mayfair – up and coming boroughs like Lewisham and Tower Hamlets are seeing prices continue to increase too.  According to a report by estate agent, Savills, Lewisham is set to see its property prices rise by 20% over the next five years.

But it’s not just Savills that are recommending investing in London property as a sound financial decision. The world’s biggest property agent, CBRE, has produced a report that ranks the UK’s capital city right at the top spot for the most attractive places to invest in property. And, in fact, London was in pole position on the same report last year too. So, with property prices continuing to rise in the capital despite the rest of the UK’s continued economic turmoil, could London make it three years in a row?

Despite property prices hardly being buoyant in other areas of the UK (Craigavon in Northern Ireland has been the hardest hit with property prices having fallen by 18.4% down to an average of £91,530), London prices have remained safe within their own economic environment. property investment opportunities in London are plentiful and can be found all over the capital. The top five places to invest, according to a report by Savills, are the boroughs of Westminster, Kensington and Chelsea, Hammersmith and Fulham, Camden, and Islington. For some of the best property investment options, visit Galliard Homes.

New research by estate agents, Cluttons, has revealed that the average price of a flat in central London has soared above £1 million for the first time ever. Elsewhere in London, however, it is possible to stay well under this price bracket – and the Land Registry of England and Wales shows that the average price of a flat in London (information sourced between January – March 2013) was £391,496.

A popular place to buy property outside the central London belt – but within easy reach of it – is Greenwich. Here, property owners have the benefit of all the amenities of London on the doorstep but live in an area with more of a village feel. Greenwich park, the Observatory, and the Cutty Sark – along with the Thames, a great selection of pubs, independent shops and the ever-popular market, continue to make Greenwich a popular prospect with buyers. What’s more, with the newly improved tube network, commuting time from Greenwich has been eased considerably.

There are more financial benefits of investing in property in London if you are to consider the property renovation market. Although somewhat saturated with people turning their hands to property makeovers, there are still opportunities in the property market for those prepared to look. First time buyers can climb the property ladder quickly if they’re prepared to turn their hand to property development. London boroughs on the outskirts of the capital are more likely to hold investment opportunities within an affordable price range. Developers, and those with a portfolio of properties, meanwhile, will be able to invest in houses with more attractive postcodes. However, even if it’s just a case of a quick lick of paint, a new kitchen and a new bathroom, thousands of pounds can easily be added to the value of your home in a matter of a few months.

Qatar-based investor buys 45% stake in UK luxury property firm Native Land

British luxury real estate developer Native Land said a Gulf-based investor had acquired a 45% stake in it, but did not disclose its name or the amount paid for the shares.

As a result, Scottish property developer and owner Buccleuch Group trimmed its interest in the company to 10%, while Native Land’s management kept the other 45%. According to an informed source cited by Reuters, the investor group comes from Qatar and is related to the royal family.

Simultaneously, the three shareholders have set up a new firm, Native Land Investments Limited, which will invest about GBP500m (USD783m/EUR643m) in Native Land sites and projects in central London in a two-year period. With the fresh funds, Native Land expects to further strengthen its sound position in the prime central London residential market, it said.

Apart from the deal, the British firm also announced it had named Stephen Musgrave and David Peck non-executive directors.

Deloitte LLP, CMS Cameron McKenna LLP and Clyde & Co acted as advisors to Native Land on the transaction, while KPMG LLP and Berwin Leighton Paisner LLP advised the Gulf-based investor.

Native Land specialises in residential development in central London and has in its portfolio the popular NEO Bankside apartment building, located on the south bank of the Thames, as well as houses in neighbourhoods like Chelsea and Belgravia. The firm was established in 2003 by its experienced executive directors.

AIG’s German arm increases offer for property firm AIRE

AIG Century GmbH & Co KGaA, part of US insurance major American International Group Inc (NYSE:AIG), said on Friday it had increased its voluntary offer to take full control of German real estate investor AIRE GmbH & Co. KGaA (FRA:ARE) to EUR18.25 (USD23.20) a share from EUR17.00.

AIG Century, which held 7.56% in AIRE before announcing plans to launch its EUR17.00 per share buyout offer on 30 April, said today it had struck agreements with more of the target’s shareholders and secured about 69.5% in AIRE.

By 30 April, the buyer had received commitments from AIRE shareholders, which together with its own stake in the target firm brought its total ownership level to around 31.8%.

The revised price is a premium of 35.69% to AIRE’s closing on 27 April, the last trading day before the offer was announced, and 87.4% above its estimated volume weighted average price for the six months to 27 April.

AIG Century said it would publish the final terms of the buyout offer in the offer document as soon as it receives clearance from the German Federal Financial Supervisory Authority.

The acceptance period will start after that approval is secured.