‘What Will CGT Changes Mean To The Property Market?’
There is currently much speculation as to proposed changes to the system of Capital Gains Tax (CGT), which may come into effect following the emergency budget set for 22nd June 2010.
Recently, many estate agents and letting agents have reported increased enquiries from clients concerned about the impact of the proposed increase in CGT rates. Both second-home owners and investors are weighing up their options, particularly as to whether to attempt to sell prior to the emergency budget.
The Property Industry Perspective
“Whilst we have seen an increase in enquiries about the CGT situation and new instructions to sell partly influenced by an anticipated increase in CGT, there is no indication that the market will see the mass sell-off of investment properties and second homes that some are predicting,” says Rory James MacLaren-Jackson who runs Bloomsbury Residential in Salisbury and training company Property Agency Training.
“In reality, what is more likely is that the changes to Capital Gains Tax will result in lower yield rental properties being sold off. Property investors in the market for the long term will probably hold for as long as possible,” he continues.
“Some increased volume may come from public sector workers, who have second homes as an investment, losing out in the next two years and needing to sell, but the real cutbacks will only start to impact next year. Rather than a massive shift, this will simply inject some much-needed volume into the sales market.
Perhaps too many commentators look to the factors affecting the attractiveness of the property market for investors when the real issue is the relative unattractiveness of the alternatives. There is almost no return from cash (rising inflation and low interest rates creating a poor environment for savers) and equities are generally mistrusted in the current economic climate.”
So with property investors mostly accepting that they have a long-term investment coupled with low interest and mortgage rates, it is rental yield that has become the basis for calculating return rather than short-term capital growth. The proposed increase in CGT will undoubtedly affect the property market, but with these other factors considered, not as dramatically as many are predicting.
