London hits home straight to Brexit

Editorial | 28 Nov 2017

British Chancellor of the Exchequer Philip Hammond sought to tackle the country's housing woes - which is particularly acute in London - with a number of measures in his fall budget speech.

So, what does it mean for Hongkongers who own properties in Britain?

Unlike his predecessor George Osborne, who tried to cool the housing sector by suppressing demand through increased stamp duties for luxury properties bought by overseas firms, and slapping a surcharge on second homes, Hammond's budget is mostly non-punitive.

The most eye-catching initiative is his doubling of the stamp duty threshold from 125,000 (HK$1.3 million) to 300,000 for first-time property buyers. The concession applies to properties priced up to 500,000, with about 80 percent of first-time buyers expected to be exempted from stamp duties.

This stamp duty break shouldn't have any direct impact on overseas buyers, even if it's their first foray into the British market.

If there's a measure affecting overseas investors, it would be that local authorities are now empowered to double council taxes - similar to property rates in Hong Kong - on empty premises in a bid to increase supply in the rental market.

Many of these empty units are owned by overseas investors. However, the additional charges would be chump change for them, and unlikely to cause a stir among those who "bought to leave" rather than "bought to let."

To some extent, Hammond encourages demand. Perhaps he doesn't want to give the market any negative signal when the British government is stuck in a deadlock with the European Union over Brexit.

Concerns are growing over the lack of progress in the Brexit negotiations, so the last thing he would do at this sensitive moment is to discourage foreign capital from entering Old Blighty.

On the contrary, he would like to see capital continue flowing in, even though a booming property market can be a paradox that, on one hand, local residents are angered by expensive home prices when earnings lag behind growth and, on the other hand, jobs can be created throughout the supply chain.

It's certainly not in Hammond's interest to see the property market slump. But the outcry over housing must be addressed - if Prime Minister Theresa May's weakened leadership is to be spared further battering.

With the budget, Hammond has been able to generate positive talk, although it remains doubtful whether young people can really get onto the housing ladder because of the stamp duty concession - if home prices don't drop at the same time.

Perhaps Hammond has a more important consideration in mind: to stabilize the property market. After all, residential prices in London have slipped a bit as Brexit talks stall.

The Office for Budget Responsibility, the government's independent forecaster established by Osborne to improve the credibility of official forecasts for growth, is predicting the stamp duty break to push up property prices by 0.3 percent in 2018.

Next year will be crucial for the Brexit talks, and Hammond may be laying out a cushion.

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