Hello fly-to-let investors
The nights are drawing in for Northern European buy-to-let investors, and the thoughts of many will be turning towards the blue skies and warmer climate that Thailand, and other parts of Southeast Asia has to offer.
For British property investors, recent tax changes made by the Finance Minister will wreck buy-to-let as an option for many investors. Currency exchange rates also favour overseas investments, and indeed many overseas markets are recovering while U.K. property looks shaky.
“Fly-to-let’, the overseas version of buy-to-let property investments, have been a bit quiet in the past five years”, said Angelos Koutsoudes, Head of OverseasGuidesCompany.com.
“But the loss of higher rate tax relief on buy-to-let investments in the U.K., as announced in the last Budget Statement, is making many property investors look further afield for profit once again.”
Many investors in British property are only just waking up to the “bombshell” in the Budget to prevent higher-rate taxpayers claiming higher-rate tax relief against mortgage interest payments. In many cases this will not just dent the profits from the investment; for many it will wipe it out entirely.
Campaigns against the measure are gathering pace but if it goes ahead, combined with the likely interest rate rises predicted for many European economies later in the year, the change could kill off buy-to-let as an investment for higher income small property investors in the U.K.
What is the big change?
At the moment if you are a higher (40 percent) or additional rate (45 percent) taxpayer in the U.K., you can get a reduction for finance interest at 40 percent to 45 percent. However starting in 2017 this will be gradually reduced, and by 2021 the maximum claim allowed will be 20 percent.
According to calculations by the National Landlords Association, a 45 percent taxpayer with buy-to-let property which he currently pays £12,000 in interest will be worse off by £3,646 each year from 2020.
This means if you are higher rate taxpayer, and your interest payments are more than 75 percent of your rental income, then your buy-to-let investment will lose you money.
That’s bad enough but remember that for the last seven years British investors have been enjoying historically low interest rates. With those rates widely predicted to rise before Christmas, many more people will be affected. For all of them U.K. property will be an increasingly bad financial investment.
Could overseas property investments be the answer?
“We see three reasons why overseas property could be the answer for U.K. investors,” continued Koutsoudes.
Better rental returns. Some analysts, including the Global Property Guide, already put the U.K. near the bottom of the worldwide league table when it comes to rental returns, and that’s before these Budget effects are implemented.
Better capital gains. The economies of many popular overseas destinations have been slower to recover than the U.K., so are behind in both the business cycle and property price rises.
A sunnier investment. Overseas holiday lets allow the possibility of using your property investment for your own or your family’s holidays, and that’s a considerable annual saving in itself.
“U.K. property investors have enjoyed a good few years in the sun, but with the political tide turning against them, the huge emphasis on building property and helping people to buy rather than rent, it feels like we are at the end of the U.K.’s property’s summer season,” added Koutsoudes.
“Wise investors are already shutting up shop and looking for sunnier climes overseas.”
Expect October Chinese surge
Thailand’s property and real estate markets can expect a surge in overseas property hunting from Chinese buyers and investors, and a jump in personal visits as well as transactions during the lead up to, and during, October’s Golden Week holiday next month.
The alert, which comes from the number one Chinese international property portal for overseas property,Juwai.com, says that the company itself is already preparing its IT systems for a massive load increase. The two annual Golden Week holidays are peak periods for traffic to its pages, the company said, adding that traffic to the portal’s mobile website and mobile app generally increases by as much two thirds over base levels during these periods, when a large number of Chinese are traveling overseas on trips that include both tourism and property hunting.
During September 2014, a Hotels.com survey found that Chinese tourists nominated Bangkok in second place aong their top 10 international Golden Week travel search destinations. Phuket (6th), Chiang Mai (8th) and Koh Samui Island (10th) were also nominated within the top ten destinations.
Many Chinese consumers who visit Thailand will likely combine tourism and recreation with shopping and property hunting.
During next month’s Golden Week, some 480 million Chinese are expected to travel to destinations within and outside of China, according to The China Tourism Academy. Golden Week is a week-long national holiday for approximately 760 million Chinese. The first-quarter Golden Week celebrates Chinese New Year while the October Golden Week honors China’s National Day.
Nearly 5.2 million Chinese went abroad during the January 2015 Chinese New Year Golden Week alone. They spent approximately US$ 22.4 billion overseas, not including real estate purchases. Real estate is the preferred asset for Chinese millionaires, and 66 percent of China’s high-net-worth individuals intend to invest in overseas property.
Andrew Taylor, co-Chief Executive Offices of Juwai.com, told Dot Property Group: “There’s a lot to do on the backend to make sure our users have the best possible experience, from tightening up IT systems to ensuring enough staff are on duty in the Consumer Support Centre. It also means that the industry–oriented teams have to work extra hard. We can’t let down those advertisers who want to maximize the opportunity presented by the holiday travel.
“We know from experience that Chinese often combine tourism with property hunting, because they have ready money and want to make the most of their trips abroad. There’s a reason many airports around the world are plastered with billboards promoting local property that are written in Chinese.”
Image: One Thai property on the island of Koh Samui being marketed to Chinese property buyers and investors.