Scrutton Bland Property Newsletter Summer 2017

The preamble to Scrutton Bland’s recent Budget Breakfast event underlined the prevailing view that the 2007/8 crash has set the economic and political landscape for the first half of this century. General elections, the Brexit vote, more talk of Scottish independence, Donald Trump and the like is, according to some financial pundits, background noise in comparison. So where does this leave property developers and landlords, a decade on?

O n the residential side, the principal issue continues to be first-time buyer affordability. This has impacted demand considerably. The fallout from 2007/08 has hit first-time buyers with the double whammy of historically low interest rates and falling income growth (not exactly what you need to accumulate a deposit), together with stricter bank lending criteria when environment, builders have found it challenging to finance smaller scale residential developments whilst at the same time facing regulatory hurdles around the social housing requirement and planning, leaving the supply of housing duly dampened. These factors are all key to the property sector as a whole: first time buyers provide liquidity to the entire market. Hence, we are now seeing a growing “Generation Rent”. So, what does the future look like? We can certainly expect continued demand for housing and opportunities for buy-to-let landlords to expand their portfolios. However, the government has woken up to this as a politically expedient source of tax revenue (“to deal with the ‘housing crisis’ and address the ownership aspirations of the young”). applying for a mortgage. In the post credit-crunch

Serious private landlords are treating the current market as an opportunity, moving to the limited company route. The new rules on loan interest relief do not, for now, apply to companies. Given the right circumstances it’s possible to restructure and refinance affairs, incorporating a portfolio whilst holding over any capital gain. In certain circumstances the transfer may be free of stamp duty land tax. On the commercial side, the current challenges are equally as interesting. The main issue is likely to be around the fundamental change in nature of the UK economy. The retail shopping sector has had to adapt to the increase in online shopping and the rise in “click and collect”. In financial services, Britain now has fewer than 10,000 bricks and mortar bank branches left – closures often leaving the grand and historic buildings so familiar to our high street vacant. A total of 2,000 regional branches have closed during the past five years, with no sign of this letting up. As we move towards a digital, knowledge-based, flexible and freelance “gig” economy there is a rising trend of home-working and collaboration in sharing office space. The archaic and obscure business rates system is a big disincentive to new entrepreneurial ventures making use of commercial property and, according to the last Budget, that message does now

seem to have gotten through to Government. We are working with several businesses in the property sector who are now taking the time to re-write their business plans. Long term commercial landlords need to revisit strategy. Creative thinking, exploiting niches and specialisation are the watchwords for 2017 and beyond. The overriding sense for property is that there is still room for optimism. On 29 March the Prime Minister officially triggered Brexit and, whether for or against the move, it’s happening. It arrives as Qatar—a prolific buyer of London real estate—announced a further £5bn of investment in to the UK. With a General Election now set for 8 June there will undoubtedly be all sorts of distractions, but they will not affect the fundamentals which were re-written in 2007/08, and which only now we are starting to fully understand. Luke Morris is a Corporate Partner at Scrutton Bland. Luke heads up Scrutton Bland’s Corporate Finance team, working with clients buying, selling, refinancing and reorganising businesses. Luke can be contacted at luke.morris@scruttonbland. co.uk or by calling 01206 838466 .

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