UK Property and Real Estate: Market Growth, Investment Trends, and Corporate Shakeups

The UK property market is experiencing renewed growth, with Zoopla forecasting a 2.5% rise in property prices for 2024 and 1.1 million sales expected. Cities like Manchester and Liverpool are leading this surge, particularly attracting buy-to-let investors. Zoopla's report also notes the market's increased stability, with a balanced rise in both seller activity and buyer demand, making it a favorable time for investment.

London's luxury real estate market is thriving, driven by wealthy Americans seeking refuge from US social and political issues. This influx has doubled sales within six months, making Americans the primary buyers in this otherwise sluggish market, with a significant increase in their market share.

The debate on wealth taxes is gaining attention as Labour's union backer, Unite, calls for a tax on the top 1% to fund public sector pay raises. However, historical evidence from Europe suggests that wealth taxes may not be effective, often driving out wealthy individuals without achieving intended revenue goals. In the UK, the top 1% already contributes significantly to tax revenues, and adding a wealth tax could have negative economic consequences.

The UK short-term rental industry is lobbying against proposed changes to the Furnished Holiday Lettings (FHL) tax regime, which the government plans to abolish by April 2025. Industry associations warn that this move could harm the domestic self-catering sector, particularly in rural and coastal areas. They are advocating for a delay in implementation and a more balanced approach to the regulations.

In corporate news, significant shareholders in PRS REIT, a London-listed investment trust, are challenging the boardroom leadership, seeking to oust Chairman Stephen Smith and push for a strategic review that could lead to the sale of the company. Dissatisfaction stems from the recent extension of PRS REIT's management agreement, which some investors view as unnecessary. This boardroom challenge highlights broader concerns about corporate governance within the real estate investment trust sector.

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Transcript

 UK Property Prices Forecast to Grow 2.5% as Market Activity Picks Up 

The UK property market is heating up! According to Zoopla’s latest House Price Index, property prices are projected to rise by 2.5% in 2024, with a robust 1.1 million sales expected. In the first seven months of 2024 alone, prices have already seen a 1.4% increase, with the average home now valued at £266,400.

Notably, Manchester and Liverpool lead the charge in price growth, making the North West a prime spot for buy-to-let investments. As economic growth and consumer confidence drive demand, all areas of the market are showing year-on-year improvement.

Most Balanced Market in 5 Years Zoopla’s report highlights a more balanced market than we've seen in the last five years, with seller activity and buyer demand both on the rise. With 33 homes available per agent—a 7-year high—this is a prime moment to invest.

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Wealthy Americans Fleeing US Crime and Politics Snap Up Luxe London Properties 🇬🇧💰

London’s luxury real estate market is booming, thanks to a surge in American buyers seeking refuge from the social and political turmoil in the US. According to Bloomberg, sales to Americans have doubled in just six months, driven by a strong dollar and a desire to escape issues like gun crime.

These well-heeled expats aren’t hesitating—many are bypassing the traditional route of renting first and are instead diving straight into buying, with some securing multimillion-dollar homes in prestigious neighborhoods like Notting Hill.

Jo Eccles, managing director of Eccord, notes that Americans are arriving in London prepared, with their finances in order and fully aware of the tax implications. “They don’t want to return to the US,” Eccles says, highlighting the decisive nature of these buyers.

This trend is particularly striking as it comes at a time when London’s luxury market is otherwise sluggish, facing a downturn in local buyers due to stricter taxes on the wealthy. In fact, Americans have become the primary buyers in this sector, with their share of the market growing from 3.3% in late 2023 to 6.1% in early 2024.

Trevor Abrahmsohn of Glentree, a luxury real estate firm, points out that this isn’t a new phenomenon—whenever there's been upheaval, the rich have historically flocked to London. Now, with inquiries for properties valued at over $131 million, it’s clear that London remains the go-to destination for those seeking stability and luxury abroad.

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Whisper It, But the Wealthy Aren’t All That Bad 💼💷

In tough economic times, the idea of taxing the wealthy often gains traction. Recently, Labour’s biggest union backer, Unite, called for a wealth tax on the top 1% to fund public sector pay raises. While this might sound like an easy solution, history tells a different story.

Europe’s experience with wealth taxes shows they don’t work as intended. In 1990, 12 countries had them—today, only three remain. Take France, for example: its wealth tax drove out 60,000 millionaires and cost the country more than it gained. President Macron eventually abolished it to revive the economy.

A wealth tax in the UK could have similar unintended consequences. Taxing property wealth, for instance, could label many London homeowners as millionaires, even if their wealth is tied up in illiquid assets like a modest flat.

Moreover, the UK already has a progressive tax system that heavily relies on the richest. The top 1% of earners contribute nearly 30% of all income tax receipts—more than the next 20 million taxpayers combined. Many wealthy individuals, like the Coates family of Bet365, are already among the UK’s biggest taxpayers, contributing hundreds of millions annually.

Rather than pushing for more taxes on those who already contribute significantly, it might be time to recognize the vital role the wealthy play in supporting public services. After all, anyone who feels they should pay more can make voluntary contributions to HM Treasury—yet these payments are notably rare, suggesting tax rates might already be high enough.

In a time of economic stagnation and high public debt, adding a wealth tax could do more harm than good. Let’s focus on solutions that foster growth rather than punish success. 🏛️

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UK: Key associations representing the short-term rental industry have convened with HM Treasury officials in London to discuss proposed changes to the Furnished Holiday Lettings (FHL) tax regime. The meeting was attended by representatives from the UK Short Term Accommodation Association (STAA), the Professional Association of Self-Caterers UK (PASC UK), and the Association of Scotland’s Self-Caterers (ASSC), who aimed to ensure that the voices of their members were heard amidst the FHL proposals.

Earlier this month, the UK government announced plans to abolish the FHL tax regime from April next year, despite a recent change in government. This move would remove the tax advantages currently enjoyed by landlords offering short-term holiday lets compared to those providing standard residential properties.

Draft legislation to abolish the FHL tax regime, along with a tax information and impact note (TIIN) and explanatory guidance, has been published on the Gov.uk website. The government’s decision follows former Chancellor Jeremy Hunt's announcement in the March 2024 Spring Budget, where he highlighted concerns that the FHL tax regime was creating a “distortion” in the property market, reducing the availability of long-term rentals for local communities.

In addition to the changes to the FHL regime, the Treasury and the Office for Budget Responsibility (OBR) have agreed to reduce the higher rate of property capital gains tax for residential properties from 28% to 24%. This reduction is intended to boost revenue and expedite property transactions across the UK.

The preferential tax benefits currently available to holiday let owners, such as income tax reliefs for furnishing properties and the ability to reduce capital gains tax in specific circumstances, are set to be abolished nationwide.

Last week, STAA, along with major industry players like Travel Chapter and Sykes Holiday Cottages, met with Treasury officials to discuss the impending changes. In a LinkedIn update, STAA emphasized their commitment to protecting the livelihoods of their members, stressing that they are not merely opposing the changes but also proposing solutions to ensure the continued contribution of the industry to the UK economy.

Similarly, PASC UK and ASSC are pushing for a delay in the implementation of these changes until at least April 2025, citing the “devastating” impact on the domestic self-catering industry. Alistair Handyside, chair of PASC UK, warned that 20% of hosts and property owners might exit the sector if these changes are implemented as planned. Both PASC UK and ASSC have also highlighted the potentially detrimental impact on rural and coastal communities, which rely heavily on short-term lets to sustain their local economies.

During their meeting with Treasury officials, the associations underscored the economic value of the self-catering sector, particularly for rural and coastal areas, and highlighted the differences between furnished holiday lets and long-term residential properties. PASC UK called the proposed changes “overwhelming,” warning that the sector may struggle to adapt in just seven months.

Fiona Campbell, CEO of ASSC, also published a case study on Scotland’s short-term let regulations, examining the unintended consequences of the current approach and offering a framework for future industry growth without compromising public welfare.

Meanwhile, in England, the new Labour government is accelerating plans for stricter regulations on short-term rentals, with new rules potentially requiring holiday lets to obtain planning permission. A national registration scheme is also being considered, with a Ministry source indicating that it will be introduced “as quickly as possible.”

Michael Gove, the former Secretary of State for Levelling Up Housing and Communities, initially proposed the idea of national short-term rental regulations in December 2022 as part of efforts to increase the availability of homes in England.

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Investors Target Boardroom of London-Listed PRS REIT Amid Strategic Discontent

A group of significant shareholders in PRS REIT (PRONOUNCED REET), a London-listed investment trust, is mounting a challenge to its boardroom, aiming to oust Chairman Stephen Smith and push for a strategic review that could lead to the sale of the company.

Sky News has learned that a coalition of institutional investors, collectively holding nearly 20% of PRS REIT's shares, is preparing to call for an extraordinary general meeting (EGM) to remove Smith from his position. These shareholders are also reportedly targeting another unidentified board member for removal and plan to propose replacements for both directors.

Stephen Smith, formerly the chief investment officer at British Land and a senior executive at AXA Real Estate Investment Managers, has been at the helm of PRS REIT, which has a market capitalization of nearly £500 million. PRS REIT is the largest build-to-rent platform in the UK's private rented sector (PRS) and owns over 5,300 new rental properties, with backing from Homes England, the government agency.

The shareholders' dissatisfaction stems in part from a decision made in July to extend PRS REIT's management agreement with Sigma PRS Management by two-and-a-half years, until 2029. Critics argue that this extension was unnecessary, as the investment process managed by Sigma was expected to be completed by 2025, making the revised agreement redundant. PRS REIT claimed the extension secured annual cost savings of £460,000, but this has not placated the disgruntled investors.

Adding to the pressure, MIGO Opportunities, a special situations investor, recently acquired a stake in PRS REIT, anticipating that the company may soon be compelled into corporate restructuring, such as a potential break-up.

The dissatisfied shareholders believe that the PRS REIT board should explore all strategic options to maximize shareholder value. These options could include asset sales to generate capital for distribution to investors or even the sale of the entire company. A strategic review, combined with the proposed board changes, is seen as a way to reduce or eliminate the discount to net asset value currently affecting PRS REIT's shares.

PRS REIT, which floated in 2017 with an initial public offering (IPO) that raised £560 million, has since launched additional capital raises in 2018 and 2021. Despite a recent 20% rally in its share price over the past 12 months, the shares remained below the IPO price of 100p, closing at 89.5p on Wednesday—a drop of just under 0.25%.

The company has not yet responded to requests for comment.

This move comes amid broader concerns in the real estate investment trust (REIT) sector, where companies like Home REIT have faced significant challenges, raising serious questions about corporate governance practices.