This post brought to you by Eden Smith, a professional business analyst from London.
In that odd communist/capitalist empire called China the rules are flexible and the goalposts are mounted on wheels. Even when new rules are announced it is not always easy to see through the alterations and understand what their new impact will be. So it is with the latest announcement about capital gains taxes on residential property. Anxious to forestall a real estate bubble, the authorities in Beijing have announced a strengthening of the restrictions on property purchases and a stricter implementation of the 20% capital gains tax on sales. With details still unclear it is possible that the rule change will cause a short-term spike in prices and in foreign currency exchange rate by moneycorp as investors hurry to beat the new legislation.
Against such a chaotic background the Liberal Democrat’s fruitless attempt to impose a “mansion tax” on large UK houses looks quaintly English. It isn’t going to happen and, for the foreseeable future, residences will remain free of capital gains tax. That consistency of tax treatment is one of the attractions for overseas buyers of UK real estate.
Another is the undervalued send money abroad feature by moneycorp especially in pound, which has become even more affordable since the turn of the year. Compared with its levels on 1 January sterling is down by 7% against the US and NZ dollars, 6% against the euro, 5% against the Australian dollar and 4% against the Canadian dollar. Investors who have been biding their time will be delighted to see how much further their money will go.
A recent development that has helped their situation is the decision by Moody’s to lower Britain’s credit rating from Aaa to Aa1. Although the move was widely expected, and despite the United Kingdom retaining AAA ratings from Fitch and Standard & Poor’s, the time-honoured reaction of currency traders is to sell the currency of a country that receives a downgrade, and that was exactly what they did.
In the event, it was only 72 hours after the post-downgrade sell-off that the pound rebounded sharply against the euro. Investors found something bigger to worry about; the rudderless political situation in Italy. In February’s general election the Five Star Movement, an anti-establishment, anti-austerity group with no previous representation in parliament, won a quarter of the vote and, with it, a controlling position in the Senate. The result raised the spectre of Italy abandoning the Mario Monti government’s strategy of fiscal prudence and austerity. Were that to happen, Italy would almost certainly lose the support of the European Central Bank safety net and the euro would once again face an existential threat.
So the pound is not the only major currency under pressure but Britain offers Europe’s – if not the world’s – premier real estate investment opportunities. Affordable property and an even more competitive pound together make a compelling case to invest now before the opportunity slips away.