Investing in UK properties for Singapore investors
London’s property market is a favourite with Singapore’s affluent investors. But post-Brexit, the decision to invest in the UK has become complicated.
While the British pound is now cheaper, making purchases more affordable, the prospects for an appreciation in real estate values are less certain. Yet, despite this development, Singaporeans continue to remain active in the UK’s property market.
Residential real estate in London is expensive. A recent report in the Telegraph says that average house prices in the city are at £473,073 (S$842,000). In the last year home prices have risen by 3.7%.
But some analysts hold the view that prices in the London property market are unjustified. Swiss bank UBS has created a “bubble index”, which says that London has the second most overvalued market in the world after Vancouver in Canada.
Even though real estate values in the UK and especially in London may be excessive, investor interest has remained largely unaffected.
The buying process
Wealthy buyers prefer properties in Prime Central London. Residential real estate in Chelsea, Mayfair, Westminster, and Kensington is in great demand.
To locate a suitable property, you will need to engage an estate agent. Expect to pay a fee that could range anywhere between 0.75% and 3.5% of the selling price. VAT at the rate of 20% is also applicable.
After you make your choice, you will need to make an offer. But remember that the final sale takes place only when your lawyer and the seller’s lawyer exchange legally binding documents.
It is fairly common for sellers to continue keeping the property on the market even after you have made the offer. If the seller gets a better price from someone else, it is quite possible that you will lose out.
While there is nothing much that you can do if this happens, there is one precaution that you can take. Check whether the estate agent has taken the property off the market. This will limit the possibility of new buyers bidding for the property.
To complete the purchase, you will have to appoint a solicitor or a licensed conveyancer. This person’s role will include:
Handling of the legal contracts.
Providing legal advice.
Carrying out local council searches.
Dealing with the Land Registry.
Transferring funds to pay for the property.
In addition to paying your estate agent, you will need to bear the cost of surveying the proposed property. A building survey will cost about £500. If you are planning to purchase an existing property, this is an essential exercise.
A house built many years ago may look absolutely flawless, but there may be problems that are not easily discernible. Issues may range from structural defects to rot and subsidence.
Retaining a trained surveyor is well worth the amount that it will cost.
Solicitor’s fees are another expense that you will have to bear. These can vary widely, but expect to pay at least £1,500.
If you decide to rent out the property that you have bought, you will need to pay income tax on your rental income. The tax amount will be calculated after deducting the expenses that you incur on the property.
You can only deduct revenue expenses. This includes repair costs, maintenance, insurance, and management fees. If you spend any amount on improving the property, you cannot claim a deduction. This sum will be considered to be capital expenditure and you can deduct it to calculate your gain when you sell your property.
How much income tax will you need to pay? Non-UK-resident individuals are liable at progressive rates that rise from 20% to 45%.
Value Added Tax (VAT) is another burden that you will have to bear. Many of the costs that you incur in connection with your UK property will be liable to VAT at the rate of 20%.
The services that will attract this tax include legal fees, architect and survey fees, estate agent charges, and other professional costs.
Buyers are also liable to pay stamp duty at the time of purchase. The rates range from 0% to 12% based on the value of the property.
Prospects for UK’s housing market
Halifax, Britain’s biggest mortgage lender estimates that house prices in the country will rise by a percentage between 1% and 4% in 2017. But the lender says that parts of London could see a decline in house prices.
Countrywide, UK’s largest estate agency, is not so optimistic. It predicts a fall of 1% in prices in 2017. Regardless of which direction the market takes, UK’s popularity as a preferred property investment destination is assured.