Why Brexit Might Not Be That Bad

It’s official (almost), the wheels have been set in motion to trigger Article 50 and start the process of taking the UK out of the EU. Understandably, there has been a great deal of media coverage about what this will all mean and while, on the one hand, the future is anybody’s guess, on the other, when trying to determine what will happen, it’s often helpful to look at the fundamentals.

Fundamental 1 – London is a property market apart

London is home to the city, which has been quite open about its concerns regarding leaving the EU. Other European cities have also been quite open about their desire to lure businesses away from their London bases. There are, however, a number of reason to refrain from panicking about a property crash in London, for example:

1 – While it would probably be painful for the city to lose access to the European market, it has global reach so it is highly doubtful that the blow would be terminal.

2 – Even though London and the city are often spoken of as though they were one and the same, in actual fact there is far more to London than the city. The creative industries are one obvious example of this, as is the fact that many digital technology and other “disruptive” companies, have chosen to make London their base. These cover a broad scale from industry giants such as Apple, to niche start-ups. In principle, these companies could be lured away by other cities with equivalent infrastructure and continued access to the single market, however in practice there are a number of reasons why they should stay put.

3 – The UK has a very flexible labour market including a thriving freelance economy, which is great news for companies who need to get work completed but want to avoid the commitment of taking on employees (at least until they have a clearer idea of where they stand). It also tends to be at least relatively accommodating of disruptive business models. Paris, by contrast, has been locked in a battle with tech giant Amazon, which is unlikely to have passed unnoticed by any technology companies who may have been approached about moving there.

Fundamental 2 – The UK is an attractive export market for other countries

While some pundits have speculated that certain EU members may be prepared to sacrifice their own export potential in order to make an example of the UK and deter other countries from leaving the bloc, it’s a wide open question as to whether this would be a feasible ploy in real-world conditions. In simple terms, such an approach carries the risk of causing job losses and this may go down badly with the (voting) public. Even if such a scenario did occur, it is highly likely that other countries would look to fill the gap, which would create reciprocal export opportunities for the UK. This is important for the post-Brexit outlook of regional economies which are based on agriculture and/or manufacturing.

Fundamental 3 – Long-term value will always attract investors

While the weakening of the pound makes it more expensive to import raw materials, it also means that anything priced in sterling becomes more affordable in real terms to international buyers. This includes finished goods (for export), shares in UK-based companies and, of course, property. The fall in the value of sterling could, therefore, help to provide a short-term boost to the UK economy during and after the Brexit process. Over the long term, it is a reasonable expectation that as the UK economy stabilises, the value of sterling will rise again until it is, eventually, back to its pre-Brexit levels.

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How Will Stamp Duty Affect Buy To Let?

April 2016 saw the introduction of a 3% stamp duty levy charged on purchases where the purchaser already owned a property. There were a few exceptions to this and certain circumstances in which the levy could be refunded (e.g. if people were moving from one property to another and only had two properties temporarily). Buy-to-let landlords, however, essentially pay 3% more for a property than a first-time buyer would.

The Theory

Home buyers and buy-to-let landlords are in direct competition for properties. Competition increases prices and higher-priced houses require larger mortgages and hence higher incomes and bigger deposits. If higher house prices mean that people are unable to afford to buy, then these people are, effectively, forced to rent and as renters they have to pay their landlord while saving for a deposit. This puts them at a disadvantage in the property market. The 3% surcharge is, therefore, intended to level the playing field.

The Reality

Given that the 3% surcharge was introduced just a few months before the Brexit vote, with all the turbulence that has caused, it is difficult to impossible to determine what specific impact the surcharge has had by itself. What is, however, possible, is to look at recent history and see what indicators it may give for the future. Home ownership has long been a central plank of government strategy (at least since the days of Margaret Thatcher). Over recent years, various governments have introduced a range of schemes to make it easier for first-time buyers to get on the housing ladder. These have included: shared ownership, equity loan, mortgage guarantee and the help-to-buy ISA. For want of a better term, these schemes can be seen as carrots to help home buyers. The government’s new stamp duty surcharge, therefore, can be seen as a stick with which to beat BTL landlords. The fact that the government is now using sticks as well as carrots raises the question of what other action might be taken to make life more difficult for BTL investors if the current measures fail to have the desired effect.

Moving Forward

The BTL market, for the moment, still seems very much alive and well and there has already been extensive discussion about the action(s) landlords could take to minimise (or eliminate) the effect of these charges. Suggestions have varied from passing the costs on to tenants to moving properties into a limited company, whereupon different tax rules apply. The challenge facing BTL investors is that if they find themselves locked into a battle with government policy any move they make, even if it is legal at the time, can be rendered ineffective at a later point through a change in the law or the tax system. On the one hand, there are many reasons why the BTL market could and should offer attractive returns in a country like the UK, on the other hand some investors may be feeling uncomfortable about the prospect of being in the government spotlight and may be looking for alternative ways to profit from the UK’s thriving property market.

Is property development the new BTL?

One point on which there is broad consensus is that building new homes is crucial to the UK’s future, partly because the population is increasing and partly because existing, lower-grade housing stock needs to be replaced. Because of this, high-quality property development is actively encouraged, for example, the 2016 autumn statement included a specific commitment to building new homes. Hence investors who want to enjoy the returns from property without the risk (and effort) involved in buy-to-let, might find investing in property development is the perfect solution.

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New Home Manifesto – What Does It Mean?

Annual budgets serve many purposes, one of which being to show that governments are making good on election (or other commitments). Affordable housing (or the lack thereof) has long been a political hot potato in the UK and therefore it was only to be expected that the government would take some form of action to address this in the budget.

The promises in brief

There were two key points which directly relate to housing throughout the UK. The first was the promise of a £2.5bn housing infrastructure fund, which should lead to the building of 100,000 new homes in areas of high demand. The second was the promise of £1.4bn which was specifically for the provision of 40,000 affordable homes. With regards to this second point, it’s worth noting that this pledge actually goes even further than simply providing the funds. The government has relaxed the rules around bidding for the funds, meaning that companies have more options open to them than previously. In addition to this, there was a £3.15bn funding pot provided to London for the provision of affordable homes.

The budget also contained a number of promises relating to infrastructure, which could feasibly have an impact on the property market, for example increasing transport options may make it viable for people to travel to work from places they would otherwise have been forced to overlook and similarly rolling out superfast broadband may increase the options for home/remote working, which again could have a knock-on effect on the property market.

A stick for buy-to-let, a carrot for new homes

In 2015 the government delivered two sucker punches to BTL landlords. It made changes to stamp duty so that those owning more than one property paid an increased fee and it reduced the amount of mortgage tax relief which landlords could claim. The 2016 statement left BTL landlords alone, although plans were announced to clamp down on fees charged to tenants by letting agencies, but contained the announcement that the government would be supporting house building in general and the provision of affordable homes in particular.

However with new taxes and stricter lending controls coming into force in a few months the buy to let market is not looking as promising as it once did.

The outlook for 2017 and beyond

At the moment it’s rather hard to say what effect all these changes will have in practice. First of all, the autumn statement was only a few months ago and happened right before the Christmas period which has its own set of rules (some economic sectors being frantically busy, while other go into seasonal limbo). Secondly some of the changes are yet to be enacted and in some cases, it’s unclear at what point they will be implemented. For example Philip Hammond’s promise to put the brakes on agency fees is to be implemented “as soon as possible”. Thirdly, and possibly most importantly, there is very little clarity on how these pledges are going to be implemented in practice. For example, the government has relaxed rules around bidding for funds to develop affordable housing so that, in principle, bidders could develop homes for affordable rent instead of having to offer some sort of ownership option, be it shared ownership or rent to buy. These new rules, however, have yet to be tested. In other words, at this point it’s entirely unknown whether or not bidders will consider it worth their while developing property intended purely for rent or whether their applications will be accepted if they do. It’s also unclear where the priority will be in the “high demand areas”. London would be an obvious example of a place where housing is desperately needed, but it has already been designated its own pot of affordable housing funds. Presumably the answer to these questions will be revealed in time, but the government acknowledging the importance of home building in the UK is, at least, a positive sign.

https://www.theguardian.com/housing-network/2016/nov/23/autumn-statement-2016-social-housing
http://www.homesandproperty.co.uk/property-news/autumn-statement-2016-five-ways-it-will-affect-the-property-market-a106501.html
http://www.bbc.co.uk/news/uk-politics-38075649

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Rice’s Hill, East Grinstead update – March 16

The Bastien Jack team are pleased to confirm planning permission has been granted for a new development of twelve new One and Two bedroom apartments in East Grinstead, the site will also incorporate two penthouses. We have appointed a design team who are developing conception/planning drawings  to construction drawings.

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The site has already had Soil Investigation tests and a Topographical Survey to assist with the foundation design and all results so far have been positive.

We are developing the internal specification but will base on our current well received spec used in Phoenix House Phase 1 and Phase 2.

Joseph Gilbert, our newly appointed Project Manager will take the lead on this site as well as Saxley Court.

There is keen interest in the properties, please give our Lincoln office a call if you want to reserve off plan.

Kind regards

Rick

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Saxley Court, Horley update – March 16

Bastien Jack are pleased to announce and welcome Joseph Gilbert as Project Manager, he will drive the Saxley Court project forward as one construction phase with Bastien Jack Limited leading as Main Contractor.

Due diligence of sub contractors aligned to the project continued during March.  We take great care to ensure the correct contractors are appointed who have a reliable track record, where we can be confident of the quality of work and the programme can be delivered as scheduled.

Please review the proposed development:

Saxley Court walkthrough video

We are still on track to deliver the project by September 17.

Warm regards

Rick.

 

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Saxley Court, Horley update – February 16

The team are now pleased to confirm we have the necessary Party Wall Licences and Access agreements to allow us to demolish part of the existing structure and commence the development at Saxley Court. We have also secured sales for 31 apartments and the legal exchanges will be sealed over the next couple of weeks.

It has been necessary to have lead in period for this project. In the past Bastien Jack developments have been smaller and work has started on site as soon we have legally completed. Saxley Court is a lot larger and more complex meaning we couldn’t have started this site as soon as we purchased it. We have tenants in five existing and trading retail units which we need to accommodate throughout the project.

The design also fills the whole site, therefore building up the to the curtilage requires license awards form our neighbours both freehold and leasehold before we can begin. After we bought the site last year, we embarked on the process of obtaining the necessary licenses/agreements. Unfortunately, there is no time limit for a neighbour to agree or disagree to the licenses, it’s down to the appointed surveyors to carefully negotiate and agree consideration payments. It is therefore difficult to account for a timeframe and include this into a lead in programme. For simple non contentious requests it takes three months to agree an award from the point of issuing the request, however Saxley Court was not a straightforward application.

As well as the Party Wall Awards, the project was further complicated by initial requests to develop in two phases. This created more planning considerations and practical methodology to ensure the build was achievable. We are now able to consider the conversion of the existing building and new build section in one phase, which will assist us in practical construction and successfully accommodate the existing retail units.

Bastien Jack has the experience to alter its entity, we have split up the development into separate Sub Contractor packages where Bastien Jack takes the role of Main Contractor and we’ll drive the project with a full time Site Manager and site staff, overseen and supported by our Project Manager. Firm labour and material prices for the defined sub-contractor works are being gained, we’ll award accordingly and commence on site with the knowledge the project will deliver all the objectives previously communicated.

With the benefit of this knowledge, we projected to commence on site in January 2016, we will now look to commence as soon as Sub Contractors have been appointed and conclude by September 2017.

Regards

Rick.

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Phoenix House Phase 2 update – November 15

We are in the final stages of Phase 2 Phoenix House and delighted to confirm we are on programme despite some awful unseasonal weather for the South East.  The Townhouses have 1st fix electrics completed while plumbing is nearing the end of its 2nd fix.  Externally we are well on with the external finishes and will be aided further when the scaffold is removed.

The penthouses are also well on with the separating wall and internal partitions in place.  1st fix electrics are also complete and plumbing as the townhouses nearing 2nd fix completion.  We are ready to commence skimming and plastering!

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The site has evolved significantly as we fully engage with new build and conversion around already completed and occupied Phase 1.  Careful consideration has been given to our new occupiers as we co habit the site, daily briefings are  provided via notices in the lobby and daily due diligence and Health & Safety risk analysis is conducted by our Site Manager.

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Regards

Rick Nicholls

Operations Manager

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Phoenix House Phase 2 update – Sept 15

After planning permission was granted to provide two penthouse flats in the roof void and two new three storey Townhouses at the end of Phoenix House, work started at a pace.

Despite the wettest August in a century with rainfall in West Sussex totalling 144.2mm, the team have progressed very well with Phase 2 and are ahead of programme!

Reduce levels excavated and set out to receive raft foundations for the new Townhouses

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Lightweight Steel Frame for one of the townhouses…. and a day later already up to second floor

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Roof space being prepared and initial install of the new steelwork to accommodate five new dormers and balconies serving the Penthouses

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Marketing details have just been released for the Townhouses and are being sold locally by Cubitt & West Estate Agents

 

Rick Nicholls

Project Manager

Bastien Jack Ltd.

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Phoenix House Phase 1 update – Sept 15

We have all but completed the first phase delivering 24 flats at Phoenix House, the carpet fitters are completing their works to the common parts, all have been sold except one!.  Building Control and CRL the warranty provider have been booked to visit site and sign off the scheme which will signal the end of this successful phase.  Feedback has been very positive concerning the clever layout and the high quality standard of finish and we look forward to welcoming the new owners in due course.

Typical Kitchen in the spacious open plan living layout in a One Bedroom apartment

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Light Hallway fully carpeted, the décor complementing the Oak panelled internal doors

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Well lit corridor waiting to receive carpet

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Rick Nicholls

Project Manager

Bastien Jack Ltd

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