Was Kwarteng’s “fiscal event” good for London real estate?

COMMENT: Staring at a blank piece of paper in the hope of inspiration for an article and with a looming deadline, I thought I would tune in to the “fiscal event” foreshadowed by the government and delivered on the morning of Friday 23 September.  I will leave it to much smarter people than me, alongside the financial markets, to give their view on what turned out to be quite a package. But I was struck by how much of the content impacted the sector we work in, and thought I would take the views of a few clients and contacts – with a bias towards the capital – as to whether it hit the spot. Existing framework On many a client’s wish list for intervention was the planning system, which featured heavily in the statement. Cue the chancellor, Kwasi Kwarteng, declaring the current regime for major nationally significant projects “too slow and fragmented”.  As a kick-off, a list of more than 130 (excluding freeports and digital) “major infrastructure projects” are detailed for acceleration, with an objective for the vast majority to be under construction by the end of 2023. That timescale feels challenging even in a normal business climate, particularly in the context of a potential public procurement – so presumably there will be heavy reliance on existing framework agreements.  But in the current maelstrom of increasing inflation, we are far from normality. Without fail, client concern revolves around the impact rising and unpredictable costs is having on supply chains and pricing construction works, which leaves developer teams in particular having to weigh up how much risk they are prepared to accept for a potentially diminishing return.  The impact of the various changes on the inflationary pattern when balanced against the war in Ukraine will have to be assessed by economists, but it does beg the question – absent a peaceful resolution to the war, how can these projects be realistically priced without a substantial governmental underwrite? As a side bar, the list does not feature any health projects. Readers may recall government committing £3.7bn for 40 (or 48, including those invited to bid for funding) hospitals by 2030. Preferred in this statement are “the roads, railways and networks that carry people, goods and information all over our country”. Potentially unsurprisingly, very few of these projects are London-based. However, the Greater London Authority does feature on the list of potential “investment zones”, which will bid for specific areas to take the benefit of a slicker planning regime and/or tax incentives to initiate development and investment. Among the tax benefits, successful zones will be outside the clutches of SDLT. Again, from a sectoral perspective, any encouragement to development is welcome and as with the various reincarnations of enterprise zones before them, seems a positive step. Devil’s in the detail As well as being cut entirely in investment zones, the transactions which will attract SDLT will also be reduced and the thresholds brought into line with (seemingly inexorably) rising prices. The nil rate will be doubled to £250,000 and the first-time buyer’s relief extended. The latter move, upping the cap for claiming relief to £625,000, will definitely support the market in London, subject to the benefits not being entirely eroded by the increases in interest rates and availability of mortgage finance. It also further acknowledges that residential property in the UK long since abandoned any link to affordability or perhaps reality. Predictions of a correction have been proven wrong before, but there is a general feeling among clients that interest rate rises, if maintained over a period, will inevitably apply some form of restraint. The government also committed to further property disposals, which is consistent with the overall ongoing hub programmes and indeed the government property strategy last updated in late August, a key tenet of this being a “smaller, better and greener” and, in all likelihood, less London-centric estate. In summary, the general feeling was positive but with a caveat that the crucial devil will be in the fine detail. Potentially inevitably, the success or otherwise of these measures in a real estate market in flux already could come down not to the good intentions and aims behind them, but be dictated by factors outside the control of the policymakers and teams incorporated to implement them.  Richard Birks is a partner at DWF