UK landlords sell in a hurry amid fears of capital gains tax increase

The proportion of former rental properties for sale is the highest on record, an increase that may be driven by landlords’ fears of an increase in capital gains tax in the budget, according to Rightmove. Eighteen per cent of properties for sale were previously on the rental market, compared with 8 per cent in2010.

The property website said that landlords’ fears that the budget on October30 would result in an increase in capital gains tax — a tax on the profit made when an asset is sold — could be behind the surge.

London has emerged as a hotspot, with 29 per cent of homes for sale having previously been rental properties. Scotland and the northeast follow, with a proportion of 19 per cent. The percentage has been slowly increasing for months. The previous five year average for homes switching from the rental market to the sales market is14 per cent, according to Rightmove. Tim Bannister, its property expert, noted that while the trend was increasing, it did not signal a “mass exodus of landlords”.

The number of new properties entering the sales market has risen by 14 percent compared with a year ago, a period when the market was subdued by high inflation and peak mortgage rates.

Compared with 2019, the last year before the pandemic, the number of homes for sale this year has increased by 3 per cent. Bannister said: “In recent years it has become more attractive for some landlords to leave the rental sector rather than to continue to invest in it, due to rising costs, taxes and legislation.

We’ve seen over the last few years how the supply and demand imbalance can contribute to rising rents, so there is a worry that without encouragement for landlords to stay in rather than leave the rental sector it is tenants who will pay the price.” Sir Keir Starmer has warned that the budget will be “painful” and that those with “the broadest shoulders should bear the heaviest burden”.

Rachel Reeves, the chancellor, has declined to rule out an increase in CGT. At present CGT is levied at rates of between 10 and 28 per cent. An increase could lead to a “significant rise” in the tax burden, Marc von Grundherr, director of the estate agent Benham &Reeves, said. “This would be yet another blow to those who provide vital housing stock that is sorely needed within the rental sector, following a string of legislative changes already introduced in recent years to dent profitability

Source: The Times

President Marcos’ 3rd SONA: What’s in it for PHL property

President Ferdinand R. Marcos, Jr.’s third State of the Nation Address (SONA) highlighted crucial issues that will have a direct or peripheral impact on Philippine property. From the improvement of the country’s infrastructure network to the upskilling of potential workforce,

Colliers believes that these pro-business reforms will play a pivotal role in resuscitating Philippine property post-pandemic. While challenges remain, including business registration bottlenecks, President Marcos’ last SONA infuses much-needed optimism, particularly in stoking the property segment, which is being positioned as one of the key job and livelihood-generating sectors of the Philippine economy.

Tourism was also highlighted, which has great potential to employ Filipinos living in the countryside. What’s encouraging is that the president also addressed the country’s costly electricity and measures that can be implemented to plug power shortages. This should play a key role in revivifying the Philippines’ manufacturing competitiveness, which should enable the country to attract much-needed foreign direct investments.

IMPROVEMENT OF PHYSICAL AND DIGITAL INFRASTRUCTURE

President Marcos committed to infrastructure development that is ‘sustained, strategic, and on schedule.’ We expect the president to continue allotting 5% to 6% of the country’s GDP to infrastructure. Previously, he ordered ‘full speed ahead’ to amplify his administration’s goal of ramping up and hastening infrastructure implementation across the country.

This is basically a continuation of the level of spending implemented under the previous administration. The strategy is definitely not just Metro Manila-centric. Based on the projects mentioned by the president, among the provinces likely to benefit from this infrastructure program are Bulacan, Cavite, Laguna, Batangas, Pampanga, Zamboanga, Lanao del Norte, and Misamis Occidental.

Colliers previously highlighted the importance of infrastructure projects in raising the attractiveness of office and residential projects, especially outside Metro Manila. This is likely to be supported by decentralization, which the president previously stressed.

We also highlighted the importance of infrastructure in raising land and property values as they improve people’s mobility. We believe that this infrastructure blueprint will play a crucial role in guiding developers’ landbanking and expansion plans. Hence, developers should be on the lookout for the progress of these projects.

UPSKILLING OF FILIPINO STUDENTS

The president emphasized the need to focus on technical-vocational education and training (TVET). This is important in ensuring that the Filipino workforce is globally competitive. The Department of Education, Commission on Higher Education, Department of Labor and Employment, and Technical Education and Skills Development Authority have incorporated TVET into the Senior High School curriculum to further boost the employability rate of students.

This should be complemented by the president’s earlier push to use English as our medium of instruction. In our view, these are important in retaining our edge in the outsourcing sector, especially for higher value services or Knowledge Process Outsourcing. This should also support the government’s goal of attracting more BPO investments and generating more employment opportunities.

More BPO investments could potentially raise the demand for office space in Metro Manila and other key urban areas such as Cebu, Iloilo, Bacolod, Davao, and Clark in Pampanga.

The new Education Secretary should ensure the implementation of a curriculum that will help bridge job mismatch and ensure that college graduates are equipped with skills that will make them employable after graduation.

MULTI-FACETED STRATEGY IN PROMOTING TOURISM

President Marcos highlighted the important role that tourism plays in generating jobs, especially in the countryside. He stressed the need to improve roads and international airports to enable the Philippines to accommodate more tourists. In 2023, the tourism sector contributed about 8.6% to the country’s GDP, lower than the pre-pandemic level of 12.8% in 2019 — the year when the Philippines attracted the most number of foreign tourists at about 8.2 million.

Colliers believes that the gradual recovery of tourism augurs well for the country’s economy, including property players that have established their own leisure-related businesses. In our view, the modernization of airports and development of access roads should guide developers that are planning to build hotels and Meetings, Incentives, Conferences, and Exhibitions  facilities outside the capital region.

The improvement of infrastructure should also boost the Philippines’ international travel and tourism competitiveness, and this should entice more foreign investors to invest in the country’s leisure sector.

CONTINUED SUPPORT FOR OFWS

President Marcos also highlighted his administration’s programs for Filipinos working abroad. During his SONA, he mentioned that partnerships with like-minded states have resulted in increased investments and strengthened national security, but also quality jobs for Filipinos seeking employment overseas. This should support the continued deployment of migrant workers and sustain the inflow of remittances.

Colliers sees the growth in remittances partly supporting the demand for horizontal units, particularly projects that are within the affordable to mid-income (P2.5 million to P7 million) price segments, and projects located within the Central Luzon and Calabarzon (Cavite, Laguna, Batangas, Rizal, and Quezon) regions, which accounted for about 29% of deployed overseas Filipino workers (OFWs) in 2022. We have observed sustained take-up for house-and-lot and lot-only units in provinces including Pampanga, Bulacan, Cavite, Laguna, and Batangas.

EASE OF DOING BUSINESS AND ADDRESSING COSTLY AND INSUFFICIENT POWER

President Marcos highlighted that the government’s efforts to improve the ease of doing business through the digitalization, integration, and streamlining of government services have produced ‘multiplier effects’. The government has also set in place policies and programs to create a conducive business environment through reforms in the capital markets and the implementation of ‘green lanes’. These measures should enable the country to attract greater interest from foreign firms, including manufacturers that take up space and warehouses in industrial parks.

We recommend that developers highlight the advantages of locating within an industrial park to potential locators. Industrial parks are flexible or easily reconfigured and have zoning regulations tailored for industrial uses. They also have modern infrastructure design such as well-maintained road networks. Locating in an industrial park could also be more cost-efficient as utilities, including water and electricity, are managed systematically.

According to the Department of Energy, electricity rates in the Philippines continue to be some of the most expensive in Southeast Asia. In our view, this will likely be a challenge, especially in attracting locators from power-intensive industries such as data centers.

BANNING OF POGOS

President Marcos has ordered the banning of POGOs. This created a lot of noise, especially in the property market, given that some developers aggressively chased the additional demand from this sector from 2017 to 2019. As my colleagues from Colliers Philippines’ Office Services-Tenant Representation team highlighted through their latest release ‘PBBM bans all Philippine Offshore Gaming Operators’, the share of office space occupied by the POGO sector has been dwindling.

At the peak of POGO demand in 2019, these offshore gaming firms from China occupied about a tenth of the total leasable office space in Metro Manila. This is down to only about 3.5% as of this writing. The latest office deals from POGOs have been ‘sporadic’ at best. It appears that the POGO sector is no longer a major player in terms of office space take-up in Metro Manila, with the latest Colliers Philippines commentary stressing that future absorption will likely come from IT-BPM firms, MNCs, and traditional occupants including government agencies.

Source: Business World

Modernizing property valuation

Whether you are an individual looking to purchase a house, an entrepreneur about to lease a place for your next business venture, or a corporation considering acquiring equipment, it is important to ensure that you are getting a fair deal on your target property.

At present, there are three bases for the valuation of real property for tax purposes: (1) the Bureau of Internal Revenue’s (BIR) Schedule of Zonal Values (SZVs), (2) Local Government Units’ (LGU) Schedule of Market Values (SMVs), and (3) the market values from the highest selling price from recent sales of property in the vicinity, whichever is higher. This rule is usually the root of disagreement between taxpayers and the government.

Based on studies conducted by the Department of Finance (DoF), SMVs are significantly lower than the values from private valuation. In 2021, data shows that 60% of SMVs and 38% of SZVs are outdated, or were not revised in the last three years. Because of this, legislators found an opportunity for a potential incremental revenue of P30.5 billion from the Real Estate sector by updating the SMVs and reflecting current market conditions.

With such considerations, Republic Act (RA) No. 12001, or the Real Property Valuation and Assessment Reform Act (RPVARA) was signed on June 13 and took effect on July 3.

This new law aims to set strict rules on updating the SMVs every three years and depoliticizing valuation through the establishment of the Real Property Valuation Service (RPVS) and Real Property Valuation Unit (RPVU) under the Bureau of Local Government Finance (BLGF); to create a single valuation base for real property taxation and benchmark for other purposes (e.g., right-of-way acquisition, expropriation and lease); and to promote transparency through a Real Property Information System (RPIS) that will ensure that everyone has access to accurate property valuations, reducing discrepancies and confusion.

STRICT REGULAR UPDATING OF SMVS

The LGUs will be required to update their SMVs, in accordance with the latest Philippine Valuation Standards (PVS), within two years from the effectivity of the RPVARA, and conduct general revisions of property assessments and classifications every three years thereafter.

The BLGF, through the RPVS, is to review the PVS every three years to ensure they align with globally accepted principles and definitions in real property valuation, with due consideration for the prevailing economic conditions. As a result, this refreshed system will create a more reliable basis of valuation for taxpayers that minimizes overpricing on the side of the buyer or lessee in terms of sale and leasing of real property, among other real estate transactions.

SINGLE VALUATION BASE FOR REAL PROPERTY TAXATION

The approved SMVs will be the basis for determining real property-related taxes of national and local governments, and used by all appraisers and assessors in the LGUs and other stakeholders in the appraisal/valuation of land, buildings, machinery and other real property, whether taxable or exempt.

In every BLGF regional office, there is to be a counterpart for the RPVS; every LGU, on the other hand, will create an RPVU under the Office of the Local Assessor. As such, the SMVs approved by the BLGF will be the basis for the LGU’s real property assessments, enabling taxpayers to easily determine their Real Property Tax (RPT) due, as well as transfer taxes (e.g., Capital Gains Tax, Value-Added Tax, Documentary Stamp Tax).

This repeals previous rules on property valuation referring to the BIR’s SZV, the LGU’s SMV, and the recent selling price of property sold within an area, whichever is higher.

AUTOMATION OF RPT ADMINISTRATION

To maintain efficient RPT administration, the BLGF is to develop and maintain an up-to-date electronic database (the RPIS) on the sale, exchange, lease, mortgage, donation, transfer of property, and all other real property transactions and declarations, as well as the cost of construction or renovation of buildings and other structures, and the price of machinery and equipment.

The RPIS is to have mechanisms for the electronic submission of necessary documents and information by concerned National Government offices or instrumentalities and LGUs, subject to the provisions of the Data Privacy Act. The RPIS may also be accessed by the private sector to seek data on the latest real property valuation. Through this automated and transparent system, the government and the private sector would have easy access to updated SMVs any time, resulting in more efficient real estate transactions.

In order to transition to this new regime, taxpayers are given a chance to avail of a real property tax amnesty (one-time or installment payment). The SZVs and existing SMVs will continue to be in force until repealed by BLGF-approved SMVs within two years from the effectivity of the RPVARA. Further, any increase in Real Property Tax in the first year of approved SMVs is limited to 6% of properties assessed prior to the effective date of the RPVARA.

Pending the implementing guidelines of this law, I hope there will be a systematic approach to ensuring that values will consistently be up to date. Similar to AMLA’s registration procedure, the BLGF could require registration to the RPIS of all LGUs, real estate professionals, engineers, architects, and other stakeholders who are sources of information on real estate transactions.

Meanwhile, on the compliance side, while not required under the law, along with the automation of the RPT administration, the implementing rules could also require LGUs to offer online payment options for easy settlement of RPT dues by taxpayers.

Going by the model of the Inland Revenue Authority of Singapore (IRAS), the RPIS could also be developed to provide comprehensive information on real property taxation and a user-friendly feature that allows taxpayers to inquire about their specific property’s valuation.

With the establishment of the RPVU, newly fledged Real Estate Appraisers have the opportunity to be part of the administration’s historic initiative and contribute their expertise to improve the valuation system.

Indeed, the RPVARA has opened doors for the LGUs to increase their revenue, which, hopefully, could be effectively used for the benefit of our fellow citizens through their current and prospective social projects.

Source: Business World