PROPERTY & ASSETS
Will build to rent schemes work in the East Midlands?
By Sheetal Sanghvi (pictured), Regional Head of Construction at RSM in the Midlands
Build to rent (BtR) schemes are being billed as the next big thing in property development. Approximately 120,000 BtR homes were completed, under construction or in for planning as of the start of June 2018 across the UK. Of that, there are circa 1,500 BtR homes across all stages of the development lifecycle in the East Midlands. This doesn’t feel much considering the national picture, but in the context of 90,000 being built in London and the North West alone, it starts to feel slightly larger. Will the concept of BtR work
here in the East Midlands? BtR goes beyond normal property renting, with the sales pitch focusing on a ‘lifestyle, not a landlord’. It is envisaged these schemes will incorporate services included in the monthly rental such as 24-hour concierge, a gym, garden areas, leisure facilities, broadband and TV services. What evidence is there that
there is an active letting market to support these developments in the region?
A search of available rental
properties within the East Midlands at the time of writing shows there are currently 1,702 one-bed apartment properties available for rent. Average monthly rentals sought for these properties is £537. The BtR model resembles the
evolving market for purpose-built student accommodation where increased competition has driven developers to offer far more amenities to meet expectation. It is difficult to know what
premium people would be prepared to pay for a high amenity rental property, but affordability will be a factor. Average earnings in the region, at around £552 per week (nearly £29,000 per annum), would suggest there are not going to be high volumes of people with sufficient disposable incomes to afford rents that may be, on average, £2,150 per month or more. The argument for BtR is that it
offers a high amenity service for a single monthly payment and provides a realistic alternative to ownership. However, the average price of a flat or maisonette in the
SBA tax relief – the key considerations
By Gurjeven Sandhu (pictured), Associate Director at Chamber strategic partner RSM – whose capital allowances team handles the complex tax legislation and practical aspects of construction, cost management and building technology.
Can the market support BtR schemes?
region stands at c. £127,000 – assuming a 90% mortgage can be secured, the monthly mortgage would be approaching £650. On the face of it, ownership might be at least as cheap as renting. The rental market is presently
dominated by private and social landlords, and supply issues appear to be concentrated at the affordable end. It remains unknown whether there is a market that
The Government has acted on the Office for Tax Simplification’s recommendations from its consultation on the capital allowances regime last year - the aim being to improve the UK’s international competitiveness and encourage investment. The Structure and Building
Allowance (SBA) is a tax relief for new commercial buildings and structures (excluding land) at an annual rate of two per cent on a straight-line basis. The incentive applies to construction contracts entered on or after 29 October 2019. Any costs qualifying for the relief
will be calculated separately for each structure or building and limited to the original cost of work carried out. The costs will be relieved across a fixed 50-year period regardless of ownership changes and can be claimed from the time the building is brought into use. When calculating chargeable
gains on the subsequent disposal of a property, a person’s allowable base costs of the asset will be reduced by the total amount of SBA relief that they have claimed.
78 business network June 2019
would necessitate the development of high concept, high cost residential property for let. It is ultimately being pitched at ‘millennials’. The question is whether there are enough people, with sufficient earnings, to justify the volume of development in planning. In the grand scale of the wider property market, BtR remains relatively embryonic, an element of caution is advisable.
Key considerations: • No balancing adjustments on the disposal of assets where SBAs have been claimed. However, for chargeable gains purposes, the allowable cost of the asset will be reduced by the total amount of SBAs claimed.
• Similar to mandatory pooling requirements, an audit trail will be required to document the SBA position when assets are transferred to ensure a claim may be made.
• Expenditure categorised as SBAs will not be eligible for the Annual Investment Allowance (AIA).
• A property will need to be in use for a qualifying purpose in order to claim SBAs.
Between 1 January 2019 and
31 December 2020, the AIA will increase from £200,000 to £1m. Optimising expenditure eligible as
main pool or special rate pool plant and machinery allowances will ensure the increased AIA can be fully utilised, which produces a greater cash flow benefit than categorising expenditure as eligible for SBAs.
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