I was out walking back from Greyfriers Church the other day (I was getting a stunning picture for the Edinburgh Property News before your ask!) when I met one of my most experienced landlords. He was having a bit of a ‘downer’ about the Edinburgh property market after all the tax changes by John Swinney and George Osborne as well as the safety stuff that has been brought in, was thinking up for giving up on the Edinburgh property market and buying a buy to let property in France, Italy, Spain, Germany or some country like that and asked my views on this.
Now property prices in other countries can be cheaper than the UK so on the face of it, if you believe the marketing hype, they can look like good investments. However, there are a few things to think about when buying abroad.
You need to make sure that you get what you think you are buying with all the consents and permissions required. I know of somebody who bought a property in Spain only to discover sometime later that planning permission had not been obtained properly and the property is now threatened with demolition.
Overseas property markets can be much more volatile than in Edinburgh. We all remember the fantastic falls in property prices in Spain and Ireland during the financial crash of 2007/2008 – they made the property price changes in Edinburgh look very small!
Rents levels can be capped thereby making them more like social housing rents rather than free market rents.
Also, each Country has its own laws and regulations about property and in particular renting out property so you would need to get your head around these.
The tax rules are different in each Country and there are some great examples of spectacular changes with little or notice in the tax rules. For example, in 2012 the French Government imposed a 15.5% social charge on capital gains from the sale of second homes or rental income – a measure which was estimated to bring in €250 million a year. Tax on rental income rose overnight, from 20% to 35.5%, while capital gains tax on property sales rose from 19% to 34.5%. These new tax measures hit overseas investors hard and meant that a British couple who bought a French property for €200,000 20 years ago and were selling it for €750,000 would have to pay almost €60,000 in charges, on top of the existing capital gains tax. They received no credit against their UK tax bill for this amount.
“So, buying a property to let abroad has a few issues but surely it is worth it to avoid all the negative stuff that is being introduced here that will affect my buy to let properties in Edinburgh that will make them uneconomical” my landlord said.
“Well, not really” I said and went on to explain.
The property market in Edinburgh in particular and Scotland and the UK as a whole is very good at finding ways to adapt to changes so that they do not have the bad impact that everybody shouts about initially. There is evidence that this is happening with the recent changes. The 3% Land & Buildings Transaction Tax (Scottish Stamp Duty) is meaning people are buying smaller, cheaper houses in an attempt to try and offset the 3% increase in the purchase price. People are buying their buy to let properties in companies to avoid the restrictions on mortgage interest tax relief that are going to be introduced. And then, of course, there is the most obvious one of all, people are increasing rents to cover the costs – you will have heard me say often that you can’t beat the market but you can join the market so if the market is increasing its price as it is then you can, for sure, join in.
So I politely suggested to my landlord that he keep looking at home in the Edinburgh property market for good opportunities – for sure, amend the model to mitigate the adverse changes coming along but do not throw the ‘baby out with the bath water’ and leave the market completely to buy overseas where there are a whole new set of issues and potentially lower returns to deal with.
Go Edinburgh! The grass is not greener away from Edinburgh.
If you would like advice on the Edinburgh property market in general and ways to help mitigate the changes that are being introduced to the buy to let market then please get in touch. Phone me on 0131 603 4570 or email me on firstname.lastname@example.org.