Buying off-plan property in bulk - whether that's buying two or more units, or a whole development - has become more popular in recent years. There has also been a trend of business and investment consultants advising investors to buy in bulk rather than relying on rental income from purchasing individual buy-to-let opportunities alone (The Guardian).
A number of newer investors, or investors who have smaller budgets, are often put off buying in bulk because of the large initial cost; however, this large initial investment can give great returns, especially when bought early on in the development. Many bulk sales are made when the majority (or all) of the units in a development are still available, which means that an investor is more likely to get the lowest price. It is also possible to get a lower price if buying in bulk towards the end of a developments build, as developers are more likely to give higher discounts. Buying in bulk later on does mean that there is less choice of which units you can buy (Kinleigh Folkard & Hayward).
Savills have recently stated that income yields on one-bedroom apartments average 8.2% gross based on market value - with yields in the north generally being higher than those in the south. This, combined with the discounts available to bulk buyers, has opened up opportunities for investors to shift their focus and make greater profits from buying smaller units in bulk. Large scale investors are also able to take advantage of their purchasing power and boost yields.
A recent report by the British Property Federation - "Investing in Residential Property" - noted that the changes to how stamp duty for bulk property purchases is calculated could lead to "significant savings for investors where the conditions for the relief are met". The 'relief' in this sense is the way that stamp duty is worked out, now being calculated on the mean, rather than the cumulative value of the purchase. Examples in the report state that:
• On a block of 30 apartments bought for £6 million, the stamp duty on the cumulative value would be 5% of £6 million - which is £300,000
• On a block of 30 apartments bought for £6 million with stamp duty based on the mean value of the properties would be 1% of £200,000 x 30 which would mean an investor is only paying £60,000 stamp duty on residential property (4% on commercial property).
Overseas investors should, however, take note of the new stamp duty announced at the start of October 2018 which states that overseas investors will now have to pay up to 3% stamp duty on property in the UK, which will see an increase in the fees they will have to pay. The ruling has come about to reduce the price of housing for UK residents, however the increased stamp duty could "punish" British expats looking to purchase property on the UK mainland (The Telegraph).
As well as the changes to stamp duty, there has also been recent reforms to the rules of REITs, which took effect following the Finance Act 2012 and has made the REIT structure more attractive to those looking to purchase property in bulk (British Property Federation). There are a number of benefits this new structure will give to large scale REIT investors, including:
• A lessen on the listing requirements of REITs so that they can be listed on global trading platforms
• REITs now have a 3-year 'grace period' in which to meet the condition that its shares are widely held
• The above 'non-close company' condition has been relaxed so that a company cannot close for REIT purposed based on the interests of certain industrial investors
• The entry charge for new REITs has been stopped, so they no longer need to pay 2% of the market value of assets at conversion