Construction Industry set to benefit from Budget boost

31st Mar 2011

The construction industry is set to benefit from a Budget boost designed to expand the nation’s rental housing market, a leading North East property lawyer has predicted.

Chancellor George Osborne’s tax cuts on bulk purchases of residential properties announced in the Budget statement are designed to encourage a return to the buy-to-let market by investors.

Chris Ross, a solicitor in the conveyancing team at regional legal firm BHP Law, says the opportunities could prompt a major expansion of the housing market and, in turn, provide fresh impetus for the construction industry.

"The Coalition government has identified buy-to-let as a way of solving Britain\'s housing shortage and wants to attract investment into residential property by major institutions, such as pension funds and landlords," explained Chris.

"The move, which is expected this summer, is anticipated to have a significant knock-on effect on the housing market.

"It will encourage large-scale investors to purchase large numbers of unsold properties for private rent as a solid form of incomeand provide much needed, high quality rental property and boost homebuilding.

"This in turn should help the construction industry. It should make it more attractive for investors to buy up unsold housing stock, enabling builders to release much needed capital to begin new projects or pay off debt," he added.

Buy-to-let has a controversial reputation after investors piled into the market before 2007, borrowing cheaply and seeking to take advantage of rising house prices only to come undone dramatically when values began to fall.

The tax cuts relate to stamp duty which has been blamed for impeding investment as it pushed up the cost of buying or building large portfolios.

The Chancellor proposed that stamp duty on the purchase of more than one property be calculated by the average value of the properties, not the bulk value.

Chris explained: "This means that if an investor buys 100 properties worth an average of £200,000 they will pay stamp duty at one per cent, equal to £200,000, rather than at five per cent, equal to £1m. The measure is predicted to cost the Treasury £560m over five years."

The British Property Federation, which has campaigned for tax changes on bulk housing purchases, said the Budget "went further than even the most optimistic within the industry could have predicted".

Property agent CBRE has forecast it could unlock £7.5bn of investment.

The Chancellor has also launched consultations on making it easier for residential investors to become a Real Estate Investment Trust (REIT), taking away the liability for capital gains tax.

The proposal, anticipated for the 2012 Budget, would scrap the two per cent entry charge that landlords must pay to become a REIT and abolish the rule restricting REITs to stock market-listed companies.

"This will allow pension funds to turn property portfolios into REITs and potentially allow smaller buy-to-let landlords to benefit from tax breaks on capital gains," Chris explained.

In addition, The Chancellor also aims to stimulate investment through traditional housebuilders. As well as a £250m fund for first-time buyers, he will allow offices to be converted into homes without planning permission and auction public sector land for development.

Chris Ross can be contacted on 0191 3840 840