Investors seek private rented sector tax breaks

Readers' comments (5)

• Howie | 11/05/2010 9:45 am

  It is rather perverse, but sadly typical, that private investors are calling for tax cuts to enhance their returtns when the rest of us are facing the prospect of higher taxes and reduced public sector spending on affordable housing for at least a decade.
  
  There is of course another way that investors could get a better return on the from the same rental income without the need for any tax incentives. They could pay less for the properties they invest in. Maybe we shoule all recognise that in the long run we will all benefit from lower property prices and that the sooner the "price" of property falls to a level where most people cant afford to buy or rent the better.
  
  The sooner the UK housing ponzi scheme comes to an end the better.

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• UnaPlanner | 11/05/2010 11:13 am

  Howie - Your observation in respect of the potential benefit of falling house prices is correct, but your logic in respect of the private rented sector is flawed. Falling prices and increased affordability of purchase would = reduced demand and hence rents for the private sector, therefore investment returns would not necessarily increase. You should also acknowledge that these 'investors' are institutional funds looking after the interests of millions of pension plan holders, so if they can't generate the required returns from residential property they will simply invest it elsewhere (most probably abroad).

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• Sceptical Economist | 11/05/2010 3:27 pm

  Irrespective of the complex relationship between supply & demand for housing, different tenures and land, I've one simple question: Why would the state want to spend tax payers money subsidising the returns of private investors?
  
  If they want to boost the returns on UK pension funds (not an obvious policy priority) there are simpler and more direct ways of doing it than subsidising investment in the private rented sector.
  
  UK pension funds appetite for investing overseas will be influenced by expectations of relative overseas returns and the exchange rate risk. I can't see the presence or absence of state subsidy to the private rented sector impacting a whole lot on that equation.
  
  Is it me or have we been discussing this issue for about 30yrs?

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• Willie | 11/05/2010 4:44 pm

  Howl all you like -- public sector spending got us into this.A period of economic reality is required to focus ALL our minds on what the results of cloud -cuckoo land thinking has got us. Greece fo example?

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• Marcus Hawley | 25/05/2010 6:09 pm

  I think there is a pretty fundamental misunderstanding here in what Institutional PRS is as opposed to just the PRS Market, which is typically categorised by the "Buy to Let" Sector. The Buy to let sector is typically small scale investors, mostly buying off housing developers, and typically speculating on the price of property. Work conducted by the HCA indicated that over 80% of BTL investors were interested in capital appreciation only, i.e they didn't consider the rental return at all in their calculations on buying, and many were simply leaving the property empty as a static investment. If you think that at some points in 2007 BTL represented 80% of some new development completions then you can see why the government is concerned, firstly it fuels the already volatile housing market's peaks and troughs and secondly if only a small proportion of BTL investors are not concerned about actually letting the properties, those properties don't assist in the housing shortage.
  
  Institutional PRS is seen as a panacea to BTL. The investment is seen much more in the terms of Rental return and cashflows will typically run to 60 years plus, and as such wants to build specific new build developments for IPRS, this has so many positive benefits, it's hard to list them all here, but as a starter: 1. Long-term thinking leads to better designed products (Most developers producing for the BTL/Owner Occupier market know that they are out of there in 2 years and that most sales are on the basis of CGI's therefore spedning money on better design doesn't make sense, this isn't the case when you know you want to let it for another 60 years) 2: Real Rental choice, in any continental city or American City Renting is a real alternative to buying because you have choice and quality wherever you want to live, in the UK there is no proffessionalism, no brand, and a massive stigma to "dead money" spent on rent, it's only when you have big investors treating tenants like customers is this step change actually going to happen, and that isn't going to happen through BTL. 3. Taking some of the heat out of BTL and the housing market by creating a stable long term market, that's immune to the slings and arrows of house prices, there are loads more too, but you'll have to e-mail me.
  
  Anyway the key to this article is BTL because they buy from developers don't pay VAT. But due to some obscure piece of legislation, if you build for yourself to let, you do pay VAT, basically making the new-build IPRS ventures and all their benefits outlined above instantly 17.5% more expensive than the tat your volume house builders might be producing. What PIA is asking for (Well Iassume so anyway) is to level the playing field.
  
  Hope this clarifies things

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