After an appallingly turbulent long-haul flight, Rishi Sunak’s aim in his 3 March Budget was to bring the plane into land smoothly. As far as real estate is concerned, CBRE thinks he did the job, with another £65bn of interventions, including welcome extensions to most of the pandemic-busting measures he had already created. These are very likely to further build homeowner, retailer, developer and investor confidence.
The OBR’s economic growth forecast of 4% in 2021 now matches CBRE’s.
Another £6bn of business rates relief, lasting for the whole of 2021-2022, albeit at a two-thirds discount from July, will provide a welcome boost to struggling occupiers and is better than we expected. From July, the relief is better-targeted than previously by being capped per business rather than per property. Looking further ahead, however, the Chancellor has announced no additional relief or support within rates from 1 April 2022. And even more ominously, the repeated delays to the fundamental review of business rates, coming on top of the delayed revaluation, are not at all helpful to longer term confidence in the sector.
The housing market measures were well-trailed, if expensive: extending the stamp duty holiday will cost £1.6bn. But market confidence is maximised by using tried and tested measures like the Mortgage Guarantee Scheme. If the scheme follows the pattern of its predecessor (launched in 2013), it might help 35,000 buyers each year, adding around 7% to sales volumes.
However, the Chancellor missed an opportunity to support renters. There was no support for the embryonic build to rent (multifamily) sector, which could like its American cousin provide a range of good quality, long tenure rental stock for singles and families.
The much-rumoured proposals for changes to Capital Gains Tax, and a new online sales tax, both notably failed to make an appearance, though we may learn more about these later this month. Coming on top of the new (April 2019) Capital Gains Tax on commercial property disposals by offshore landlords, the increase in Corporation Tax could act as a new disincentive to these investors.
On the other hand, the new two-year Super Deduction is a very welcome short-term boost for companies incurring capital expenditure on their real estate. The temporary Super Deduction for the next two years allows businesses to accelerate the rate at which they receive tax relief for capital investment on new plant and machinery assets. This includes an increase in ‘Main Rate’ plant and machinery items to 130% (previously 18%) and ‘Special Rate’ items to 50% (previously 6%). Analysis by our expert CBRE Capital Allowances team suggests a typical £10m office fit-out would, in the first two years, have benefited from cash savings of £460,000 before the Budget but £1.2m now. Even with the increase in Corporation Tax to 25% from 2023, the cash benefit over the first five years on the same fit-out would increase from £750,000 before the Budget to £1.35m now.
Colleagues in CBRE’s Leeds office are especially delighted to see the Chancellor’s announcement that Darlington and Leeds will benefit from the establishment of Treasury and UK Infrastructure Bank offices respectively. Alongside Freeport status for the Humber, and confirmation that HS2 will proceed, it’s a vote of confidence in this rapidly resurgent region, particularly benefiting the local office and logistics markets, but with wider knock-on effects for the whole of the local property market.
The Chancellor also announced the location of the new tax-advantaged freeports. These are a real opportunity to spur economic investment and drive the regeneration of disadvantaged areas within the UK. The property-related tax incentives, including zero business rates and zero SDLT for five years, will no doubt attract investors and businesses and support growth.
The plane hasn’t touched down on the runway quite yet, but this very significant fiscal stimulus definitely makes the glide path smoother.