The Chancellor has pulled a bit of a rabbit out of his hat today with his announcement that the rate of stamp duty for commercial property is to rise from 4.0% to 5.0%. The first question that springs to mind is: Will this lead to the value of properties falling by the same 1%?
Bearing in mind that additional transaction costs have the effect of reducing the net yield, in theory the answer should be “yes”. However, the effect is negligible and, when stamp duty has been raised in the past, it has not had any discernible effect on value. As a result, our view is that it is unlikely to affect value this time around either.
However, there will be a number of other effects, all of which are likely to be marginal.
1. It is likely to make property a slightly less attractive investment option.
2. It will encourage longer term ownership and penalise short term trading and, by extension, reduce liquidity; albeit our view is that real estate should always be considered as a long term illiquid asset.
3. It will encourage more investments to be held offshore due to an increase in the potential saving; which in turn will increase the number of properties where this becomes a financially viable option.
4. Finally there will be a lot of solicitors burning the midnight oil tonight as investors scramble to beat the deadline for the increase.
However, the key word is marginal. We are not expecting the increase in stamp to change market sentiment in any major way; albeit we would not want this to be the beginning of a trend!
CIO, Knight Frank Investment Management