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 news@thekeyplace.co.uk.
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