Property industry responds to cost-cutting Budget
There was a mixed reaction to George Osborne's emergency budget, with good and bad news for the property industry.
Among the property and regeneration-related highlights of the Budget were:
- A white paper will be published in summer to outline plans to replace Regional Development Agencies with Local Enterprise Partnerships led by local authorities and private sector. North West Development Agency to close in 2012
- No end to empty rates, despite manifesto promises
- Capital investment in areas outside London and the South East including Manchester's Metrolink and rail improvements for the line between Leeds and Liverpool
- A regional fund will support projects that offer innovation and create jobs
- Corporation rates will be cut by 1% to 27%, and to 24% within four years
- No further capital spending cuts this parliament, which is good for construction
- Reduction to housing benefit budget
- State pension linked to earnings from April 2011
- VAT to rise by 2.5% points to 20% from January 4 2011 but not on new housing
Commentators from across the industry gave their responses:
David Porter, head of North West commercial, Knight Frank, commented: "The biggest impact, both for property and for the economy, is likely to come from the substantial increase in VAT. The temporary change in VAT made by the previous government clearly demonstrated the potential inflationary impact of VAT rises. If inflation is driven up, will the MPC be compelled to increase interest rates? This in turn would have serious repercussions for residential and commercial mortgages, bank lending and consumer spending.
"The latter is already directly under threat from the VAT increase, and the retail sector is the most vulnerable to this budget. Some listed retailers have already seen their share prices fall on the back of the Budget announcement. On balance, however, what is deemed good news for business is good news for commercial property. Having been all too aware of the potential severity of this budget, most private industry will consider this budget to have struck an appropriate balance between taking sufficient action to protect Britain's credit rating while not having attacked the very sector on which the Government will be relying to produce its income and to underpin its projected economic growth."
Mike Creamer, chief executive of Salford-based Contour Housing Group, said: "My initial reaction on capital expenditure was relief that there are to be no further cuts this year beyond those already announced. Having said that the North of England has already been disproportionately damaged by the £6.2bn cuts – Housing Market Renewal in particular is a regional cut.
"For future years, our concern must be that government intends capital spending to be targeted at things that give the greatest economic return (transport was given as an example – more road and rail for London?).
"Northern housing providers needs to press our case even harder to demonstrate how much we contribute to northern economies – it may not figure large in the south, but it's very important to a lot of people here!
"The main concern however is any threat to link housing benefit to the Consumer Price Index rather than the Retail Prices Index. It isn't clear if the intention on benefit control will stretch this far, but if it does it would not only threaten the viability of some housing providers, but will further damage everyone's capacity to do things that government may no longer be able or willing to do for those who will be hurt most by the cuts."
Tony Baldwinson, project manager, North West Construction Knowledge Hub, commented: "Capital spending is due to fall by £28bn, around 60% by 2015-16 compared with 2009-10. Most of this reduction was already planned by the previous government, but there are two disappointing changes in this Budget.
"Firstly, the money raised from selling one piece of infrastructure such as the High Speed 1 railway will no longer be ring-fenced and ploughed back into future infrastructure projects.
"Secondly, there are no financial incentives to reduce the carbon emissions of existing assets, yet a refurbishment programme is widely claimed to be a good way of getting more from less."
Roger Tunnicliffe, head of Lambert Smith Hampton Manchester, said: "The real impact on property will become clear when we see the small print, and the Government's plans for further cost savings which will be announced later on in the year, but my initial reaction is that the measures outlined today will not hamper the recovery of our industry.
"We can expect to see a more level playing field between UK and non-UK resident corporate investors as those within the UK tax net will benefit from Corporation Tax reduction but will suffer from capital allowances reduction. However, non-resident investors, who pay basic rate income tax, will be worse off because they will not benefit from reduced corporation tax rates.
"The proposed tax breaks for anyone setting up a new business outside of London is positive news for Greater Manchester, which is extremely well-placed to deal with any resulting inward investment."
Ian Thomlinson, head of residential development and investment at Jones Lang LaSalle in Manchester, commented on the increase in CGT from 18% to 28% for those on higher tax rates. He said: "The increase in CGT was one of the most widely forecast changes in the emergency Budget but today's announcement was not as severe as anticipated, with some proposing a rise in line with income tax at 40 or 50%. The clarity and instantaneous nature of the CGT hike is good news for the housing market. However, the 10% rise will not support or encourage investment in the private rental sector. Coming into effect at midnight does remove the feared time-lag associated with this tax change and should forestall a wave of panic sales. A glut of properties entering the market could have had a rapid deflationary effect on pricing.
Thomlinson continued: "The rise in CGT sets a precedent for the housing market which might cause investors to be wary around punitive taxation affecting investment in UK housing. With cross-party support of the increase, CGT will become a disincentive for investment in housing, with Buy to Let and the Private Rental sector facing a higher tax burden in the future."
David Hunter, housing audit and business assurance partner at accountants and business advisors Beever and Struthers: "The big issue for registered providers remains capital grant funding. There is no clarity from the headline issues on this as yet but projects with a significant economic return are unlikely to be cut. However, a number of issues will impact on income and expenditure.
"There are benefit implications for tenants in respect of child benefit, tax credits and state pensions – all bad news in respect of the ability of tenants to pay rent. There is also a housing benefit cap, but this is unlikely to affect many RPs.
"Things that may help on the expenditure front are a public sector two year pay freeze, which is likely to extend into the sector, pensions impact of accelerating the increase in the pension age and a National Insurance threshold rise in 2011 and corporation tax rate reduction. Of perhaps more significance is the VAT rise in January 2011."
Richard Laming, director in planning, development and regeneration at GVA Grimley in Manchester, said: "Employment in the North West remains skewed, with the public sector accounting for over 20% of all employment. However, it will be important in the aftermath of the budget not to get the size of the public sector confused with the need to accelerate private sector investment and spending in the region. This should be the real priority going forward and the announcement of a Regional Growth Fund is to be welcomed, as is the suggestion that this may be a fund, which is accessible to private and public-private sector bodies.
"What was perhaps conspicuous by its absence in Osborne's first budget, was any mention of the role of local authorities in stimulating investment, or indeed capturing the financial benefits of economic development through more imaginative measures such as ring fenced business rates."
Mike Redshaw, partner at surveyors Nolan Redshaw: "The budget is exactly what was needed. It had to deal with the structural deficit and it has grasped the nettle. There could be adverse effects on the property market due to the combination of increased CGT and VAT, however, the reduction in corporation tax should help stimulate business and result in increased occupier demand. The smaller end of the office and industrial market could get a boost due to lower start-up costs for new businesses but it is very difficult to see retail coming out of recession any time soon as one thing the budget will definitely not do is boost consumer spending. Perhaps the only disappointing element is that if they had been tougher on welfare cuts we could emerge into growth sooner but politically this was probably too risky."
Rob Yates, offices director at DTZ in Manchester, said: "Corporate occupiers will respond to today's budget with uncertainty. The VAT increase will have a knock on effect on the public's willingness to spend, thereby reducing companies' potential revenue growth. However, the reduction in Corporation Tax over the next four years will be a positive factor, reducing tax on profit.
"Today's budget reinforces the need for corporate occupiers to reduce fixed and variable real estate costs, something they've been focusing on for the last two years."
Roy Stewart, operations director at CCINW, commented: "The funding pledged for North West transport schemes is positive news that the Chancellor has pledged funds to the extension of the Manchester Metrolink and also committed to the improvement programmes for the rail lines between Liverpool and Leeds, which is a much needed 'cross-England' infrastructure.
"It is also not good news for the 'retro-fit' market – will this mean a tax on carbon reduction on older homes?
"The increase in VAT will hit construction – at a small level, the public might be even more tempted to pay 'cash in hand', thus encouraging the cowboy builders the industry has been trying to get rid of for so long. At a higher level, construction refurbishment will be hit with extra costs, which may lead some customers to shelve projects."
Liz Peace, chief executive of the British Property Federation, said: "It's one thing to sit in opposition and criticise bad decisions but the real test comes in having the bottle to undo them and put things right. Of course we are in a climate where tax cuts are not viable, but the simple fact is that taxing empty properties at a time where high streets are falling apart is making a bad situation worse. This tax was opposed by hundreds of MPs, including four current secretaries of state."
John Brooks, Northern region planning director at DTZ: "In the emergency budget the Chancellor referred to a shift to a more locally driven planning regime; part of the Coalition Government's localism agenda. Such a regime proposes the introduction of a simplified planning consent process in specific areas where there is potential or need for business growth. Such a proposal is very similar to the Simplified Planning Zone initiative that was introduced in the mid 1990s with localised success. It will be interesting to see which councils push through these orders first, laying claim to encouraging business growth locally."
Francis Salway, chief executive of Land Securities, the country's biggest developer, said: "Empty rates has been a tax on hardship at the worst possible time and it is absolutely essential that the budget revokes it fully to support business occupiers and ensure the future provision of commercial space."
Ian Coull, chief executive of Segro, the UK's biggest industrial landlord, said: "Aside from the obvious impact on business occupiers, the consequences of this tax will last for years with a huge undersupply in new speculative development."
On the VATrise, Peace added: "Housebuilders will welcome the fact that they have avoided a VAT rise, despite the LibDem manifesto suggesting it could have been a possibility. Doing this would have been disastrous for the housing market. However, the VAT hike will put more pressure on retailers and with 12.6% of shops standing empty, we could see more damage done to the high street. What this means for landlords of shops is that they will see further downward pressure on rents, which will mean less cash for new development and investment in deprived areas."
Peter Cosmetatos, British Property Federation director of finance policy, said: "Linking pensions to earnings may be a good thing for the property industry as an investment asset class, and perhaps particularly for large-scale investment in housing, given the relationship between property income and earnings."
The rise in CGT could push up rental prices and put off investors, said Miles Shipside, commercial director of Rightmove: "Tenants at present have few other alternatives to satisfy their housing needs due to the mortgage famine. The prospect of rising rents will be a blow to them but a welcome boost to landlord's overall returns, helping to offset the increase in CGT.
"Investor buyers have helped replace deposit-strapped first-time buyers and this rise in CGT removes an element of support for the all-important bottom end of the housing market. However a drop in prices could help rekindle their interest following this CGT setback."