We recently convened a panel of experts to share the latest trends in the North West Real Estate market with an exclusive group of advisors, kindly sponsored by Fairway Group from Jersey. The discussion covered the tax, legal, financing and structuring opportunities. Read on below to discover the latest trends.
The panel features:
We opened the discussion by acknowledging that recent years have seen a boom in the real estate market in the North West of England, both in the residential and commercial sectors. However, after a generation of buy-to-let investors have reaped the benefits of the residential market, for the first time, due to changes in taxation and mortgage interest rates, landlords are losing money and wondering whether they should re-structure or sell up, says Paul Bricknell of Kuits Solicitors.
The current environment means that clients sitting on cash are rethinking their options and are open to diversifying their investments. Equally, sellers are holding out for higher prices. However, there are exceptions: there is currently a huge shortage of student properties and landlords can still do well by pushing rents up to balance the books.
On the commercial side, the development sector is booming, says Thomas Pearson of JMW Solicitors. Buy to let, build to rent and developments are still doing very well, and the demand is high. “It’s a quirky market,” Thomas says. Although it feels as though a recession is on the horizon, and investors are playing it safe, plenty of deals are still being done.
Chris Mourant of Fairway Group in Jersey is seeing a lot of international investors – particularly from the Middle East – expressing interest in real estate in the North West. Where previously non-doms would buy residential property in London through an offshore structure, changes to UK taxation and particularly the introduction of the Annual Tax on Enveloped Dwellings in 2013 have changed this. Middle Eastern clients are now looking to invest in commercial property outside of London as well. Manchester is a big university town, so the student accommodation market is thriving here and in surrounding areas, including Stockport, an up-and-coming area ten minutes from the city centre.
Faisal Rashid of Westminster Finance agrees that those international investors investing in the market out of London are the “real investors”, where property prices are cheaper and yields are higher (as much as 10%), but a lot of foreign investors still play it safe by investing in London where rental incomes are reliable. Market sentiment is always a factor, says Thomas Pearson, where overseas investment in larger projects, such as the Etihad stadium and the Far East Consortium, creates interest in investment in these areas and puts them “on the map”. The cancellation of phase two of HS2 has caused problems of course but will present other opportunities as a result. What is more worrying for clients is the political and taxation uncertainty in the UK, which is causing inertia in the property market, says Paul Bricknell. Having a different tax system which encourages foreign investment into the UK as well as increased domestic investment is vital.
High profile clients who want confidentiality are increasingly wary of the reporting requirements necessary for offshore structures. “It’s politics over economics” says Paul Bricknell and this is creating an environment which discourages much-needed investment and opportunities for capital growth. A shortage of labour, post-covid, has also had a big impact on the generation of new building, as has the endless red tape involved in planning regulations.
There has been a big shift away from the traditional jurisdictions of the Cayman Islands and the BVI for setting up offshore structures. Currently, the Isle of Man and the Channel Islands are more popular. Thomas Pearson says this is for a variety of reasons, including the fact that these jurisdictions are better policed and the legislation more transparent, as well as the fact that they are closer to home and provide a cheaper alternative. It is, however, still difficult to open a UK bank account when setting up an offshore structure, regardless of jurisdiction. The due diligence regulations are quite different when dealing with offshore assets and onshore assets, even where the client has a longstanding relationship with the bank. The changes within private banks have been particularly significant, due to pressure from regulators and the news.
Sharia compliant structuring and financing is seen from time to time. The basis of Sharia law is actually very similar to ESG investing, says Chris Mourant, as Sharia law prohibits investment into any forbidden industries. Middle East banks have a presence in London, but on the whole Sharia law is not a massive market in London or the North West, says Faisal Rashid, although clients who do wish to structure a UK asset to comply with Sharia law can, of course, be catered for.
In terms of the office market and the return to city centres in the North West, there are a few issues in Manchester, says Thomas Pearson, including a lack of supply and the prohibitive capital expenditure required to get such property up and running again post covid. Therefore, investors are divesting themselves of office stock and considering other options. But demand in the office market is still there, even if this means an evolution of what the office space might be. And, according to KPMG, there will be a full return to the office by 2026. Watch this space!
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