Recent data has revealed that “foreign billionaires” (1) are renting as opposed to buying in attempt to avoid stamp duty. The result: tailor-made, ultra-luxurious London apartments for rent, specifically designed for the “global super rich.” (2)
The demand has shifted the market
The demand is high enough to have caused a dramatic shift in the market. In the last three months of 2016, the number of advertised rental units in London costing over £3,000 a week increased by 28%. (1)
£60,000 a week (2)
One apartment, which recently made the headlines, is a 448 sq. metre penthouse in Park Lane, which costs £60,000 a week to rent. As the average annual UK wage is 28,000, a one-week stay would cost over two years of earnings. The property would cost over £3m to rent out for a year.
Avoiding stamp duty
According to the experts, foreign investors who would have previously spent £10m on purchasing property in London, are choosing to rent to avoid stamp duty charges. New stamp duty regulations, which were introduced in April 2016, now force buyers to pay a 12% tax on properties which cost more than £1.5m. The tax increases to 15% if the property being purchased in a second home. For a £10m property, which was an investor’s second home, the stamp duty charge would be £1,413,750. (3)
In 2016, the government raised £3.4bn from stamp duty charges in London alone, and a total of £7.3bn across the UK. (1)
A rising demand, unmatched by supply
In the final 3 months of 2016, the demand for rental units continued to rise. Research suggests that, as landlords are expected to downscale the size of their property portfolios within the coming year, tenants might have fewer properties to choose from, “which is likely to push rents higher.” In fact, in the next 5 years, UK rents are expected to rise by 25%, whereas UK house prices are expected to “grow by less than 20%.” (4)
The rising demand in rental units has not been met by a strong supply. For the fourth consecutive quarter, The Royal Institute of Chartered Surveyors noted a lack of new listings emerging on the lettings market. Combined with the predicted price rise, the situation for renters trapped in a vicious cycle might get worse.
Written by Jenna Kamal
Sources
- https://www.theguardian.com/business/2017/feb/12/foreign-billionaires-london-choosing-rent-avoid-stamp-duty
- https://www.theguardian.com/money/2017/feb/18/london-penthouse-60000-weekly-rent
- https://www.stampdutycalculator.org.uk/
- https://www.theguardian.com/business/2017/feb/09/uk-rents-rise-faster-house-prices-next-five-years-rics-survey
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