In February I noted that Labour’s proposal to ban advertising property abroad would be against EU law.
Labour don’t appear to deny this but are still pushing the policy in he hope that nobody will notice that it would require our withdrawal from the EU for them to implement it.
Now a Lib Dem peer as suggested an alternative – a quota for overseas property sales. This would also be illegal.
The Government has given the proposal a robust rejection as this exchange in the House of Lords makes clear:
Lord Bradshaw:To ask Her Majesty’s Government whether they will consider working together with local authorities in establishing a limit on the number of new build properties, off-plan and readily available, that foreign investors can buy each year.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Stowell of Beeston) (Con): No. The Government has no plans to establish a state limit on the number of new build properties that foreign investors can buy.
Following the last Administration’s recession, foreign investment in new housing has been helping to provide the finance needed to build it, particularly in a global city like London. Without upfront investment, financiers would not have released the cash needed for development to go ahead, and building would have stalled. These new developments not only provide homes for people to live and work, they also unlock associated affordable housing development. Even where property is foreign-owned, much of it is rented out, generating an ongoing return for the investor.
A good example is the Battersea Power Station redevelopment which, having laid derelict for thirty years, is now being taken forward thanks to the combination of private investment from Malaysia and public infrastructure support from the UK Government. Both were essential to move the project forward.
The Bank of England recently estimated that foreign buyers represent just 3% of total residential property transactions in London (Bank of England, Financial Stability Report, November 2013). Knight Frank have estimated that between 85% and 90% of new-build sales in Greater London are sold to domestic buyers, and there is no indication of a shift towards higher non-resident purchases in the last two years (Knight Frank, International Buyers in London, October 2013). Savills have reported that the proportion of sales to overseas buyers in ‘prime’ London markets is no higher than it was in 1990. But they also estimate that, in 2012, foreign investment helped to finance 3,000 new affordable homes and added a further 3,000 much needed new homes to the market-rented sector (Savills, Spotlight: The World in London, 2013).
I would observe that the noble Lord’s suggestion would be illegal within the European Economic Area, as the free movement of capital is at the heart of the Single Market, and explicitly includes foreign direct investment and real estate investment. Short of withdrawal from the European Union, it would be perverse to allow foreign investment in housing from, say, Bulgaria or Greece, but prohibit it from Commonwealth countries such as Australia, Canada or India.
Of course, it is important that overseas owners of property pay their way. That is why this Government has taken action to tackle tax avoidance by reforming taxation of higher-value UK residential property held by non-natural persons, and also levelling the playing field by introducing capital gains tax on future gains made by non-residents disposing of UK residential property. Last month’s Budget took further steps to discourage the use of corporate envelopes to invest in high value housing which may be left empty or under-used to avoid paying tax.
The Government has actively encouraged the property industry to ensure that homes for sale are marketed in the United Kingdom, and not solely overseas. In response, the Home Builders Federation announced in December 2013 a new industry initiative which commits signatories to ensure that housing developments in London are marketed in the UK either at the same time as, or in advance of, any overseas launch. The Mayor of London has also recently launched a Mayoral Concordat on new homes in the capital, writing to key developers across the UK, asking them to sign up to commit to selling new homes on every development to Londoners before, or at the same time as they are available to overseas buyers. The Concordat is already supported by the Major Developer Group, London First, the London Chamber of Commerce and the Home Builders Federation and signed by fifty developers in London.
The Government’s pragmatic approach is helping deliver more housing for UK residents and support jobs and long-term economic growth; by contrast, illiberal protectionism and state regulation would mean the reverse.