Category: Property

We always have the concept of an ideal home that we own. People use more or less a basic set of criteria to decide whether an investment in a home is justifiable. These criteria include things such as price, neighborhood safety, amenities, resources and happiness factor.

Beyond the basic set of criteria, it is also important to keep in mind future trends that affect the value of a property. This is because most people today don’t stay in the same property or house for their entire life. Normally you start off with a small house, upgrade to a larger one when you have a family and more disposable income, and finally downgrade to a smaller home during your retirement years.

This means that on average, you will buy and sell up to three properties in your lifetime. With that as the case, it is important to make the right choice at each purchase or sell decision. The right choice includes considering future trends associated with a particular property or neighborhood when you put in the investment.

Supply levels

With house building in the UK increasing by 20% annually as of 2017, supply is ramping up. When supply increases, price point lowers. Certain neighborhoods have more vacant land and have the possibility of having more homes. If few of these neighborhoods are located in far-off, undesirable places, it is possible that demand doesn’t match supply, and property prices overall in those areas decrease.

Mortgage rates

Mortgage rates also have an impact on supply, whose effect we saw in the above sub-category. Mortgage prices have remained at historic lows, and as per the government’s promise, will continue to do so. However, keeping a look at global trends is useful since that can cause unexpected ramifications to Britain.

Real estate as an asset

While real estate remains and probably will remain the most stable asset, the emergence of numerous alternatives can mean that investors increasing prefer other asset classes for personal and institutional investment. If your neighborhood has a huge proportion of properties that are pure capital investments and not residential purchases, it will be volatile to factors such as interest rates and emergence of alternative asset classes, all of which are beyond your control.

These trends are important to keep in mind. While you cannot control everything, think of a home as an investment as much as an emotional decision. We have published more factors to consider when buying a property in another post here: www.hearthtax.org.uk/property/3-factors-consider-before-buying-property

When it comes to developing countries, every is complicated. Setting up a system and administering it is not an easy job. Most developing countries have a problem when it comes to population density, which complicates the issue further.

Property tax administration is no exception to this rule. Developing countries face rampant corruption and bureaucratic nightmares. The concept of Black money, commonly termed so in countries like India and other parts of Asia, is especially prevalent in property investment transactions. Black money is the concept of money on the table that is not revealed to government officials so as to avoid taxation.

Let us assess the current scenario. Property tax is a difficult tax structure to govern and administer, unlike more straightforward cases like income taxesor sales taxes for a chiropractor in virginia beach. It depends on three factors to function – Decentralization, administration and visibility. Property taxes function best when they have a high degree of decentralization and are independent in nature, something that is not the case in most developing nations.

In terms of administration, property taxes are expensive to maintain and difficult to modify. It is closely related to visibility, wherein once after you introduce a modification it is not so easy to track the effects of such a modification. It is hard to punish delinquency as there aren’t many “fair” punishments. If you seize a land, this becomes an extreme form of punishment that can be met with political retaliation. Cutting of utilities, something that has been tried in some nations, doesn’t work well as well.

At the same time, abolishing or replacing property tax doesn’t make sense for a government. They are revenue generating and fair means of jurisdiction. They create a sense of equity and fairness. Wealthier people who own multiple properties pay more tax to prevent them from purchasing even more and driving up home prices.

Which means the only solution is efficient reform. In countries where manpower is not available or not efficient, technology is the safest bet. There is an immense initial task of identifying and tagging each property or land space that is present. This is being done currently in Bangalore, India, where unique property identification numbers are linked to tax records.

While technology is a good starting point, there needs to be a concerted effort from elected officials and tax officials. Central governments should ensure that the administrative process is not complicated, incentivize local officials to collect tax and not engage in bribery or other forms of corruption.

And finally, incentivize citizens to pay tax by reducing bureaucratic hassles. Payment in post offices, banks, selected convenience stores and online means are good starting points.

Most of us own a property or aim to own a property in the coming years. Since ages, owning a property has been a symbol of status, security and importance. Property is an asset that appreciates slowly but significantly over a period of time, and isn’t as volatile as most other assets. Well, assuming we don’t witness another sub-prime crisis of the extent of 2009!

Before starting the journey of property hunting, there are things to note including administrative processes, rights, taxes, responsibilities etc. We assume that you have read up on basic things such as prices, location significance, neighborhood and average price increases in the area. Let us look at some key items you should be aware of that the average home buyer doesn’t think of.

Interest rates

For a decade now, global interest rates have remained at a historic low. In the UK, it has hovered around the 0.5% mark. However, with reports that the bank of England is set to raise rates above the 0.5% mark, home buyers should exercise caution. Borrowing mortgages, especially considering the average price of a London house, and rising interest rates don’t go well together. Funding part of the investment with a downpayment is recommended.

Negotiation doesn’t end

There are cases where negotiations are finalized, a contract is signed and something new pops up during further home inspections. Remember that your negotiation when buying a property should always be active till ongoing inspections are complete. You don’t want to have unpleasant surprises after you move in!

Long-term tenancy

We know you want to have your own property, and we understand. However, owning a home comes with its own set of hassles. Consider, perhaps, an option of a long term tenancy, which can be available for 99 years or 199 years depending on where you are located at. It offers the same benefits of ownership such as security and stability, with less hassles.

These are just three aspects to consider before signing on the piece of paper. A thorough evaluation will ensure you don’t have regrets later.