Increase in transfer tax mainly increases demand for new-builds
The consequences of legislative changes regarding the private sector were mainly aimed at improving the position of individual households compared to investors. The most considerable effect of the change in transfer tax however is not a drop in purchase prices, but a devaluation of existing housing portfolios of market parties. This also affects institutional investors, the largest providers of housing in the mid-priced range.
The main consequence of the change in transfer tax was that homes were purchased ahead of schedule by investors seeking to avoid paying the higher transfer tax rate. The result was a considerably higher investment volume in Q4 2020, making this one of the strongest quarters in terms of investment volume in recent years, followed by a very slow first quarter in 2021. Due to the fact that transactions of existing buildings took place at the end of 2020, institutional residential real estate investors in particular were increasingly focusing on new-build projects. In the first half of 2021 only one large-scale portfolio transaction was recorded: the LAKE portfolio worth approximately 71 million. So far, other major transactions are mainly large-scale new-build projects. Examples include Floating Gardens in Amsterdam (approximately 53 million) and 5Tracks in Breda (approximately 55 million), both of which are new-build projects and purchased by institutional investors CBRE GI and Heimstaden.
"The most considerable effect of the change in transfer tax is not a drop in purchase prices, but a devaluation of existing housing portfolios of market parties."
ESG: Affordability funds
Despite rising development costs in larger cities, institutional investors are increasingly willing to invest in affordable housing. This because there is, and will continue to be, a great demand for affordable housing, resulting in highly limited sales risks. This way, a stable revenue stream can be generated. Investors are also indicating a desire to achieve more in a general sense in terms of ESG.
ESG is a toolbox for applying environmental, social and governance-related criteria to your existing portfolio with the goal of boosting performance in these areas. The following measures may be considered: Environmental (E) Flood risk, total energy use from non-renewable sources and share of non-renewable energy usage in a building, Co2 emissions of a building. Social (S) Inclusion due to involvement of all stakeholders, contribute to affordable housing of residents, diversity of the living environment. Governance (G) Policy for combating corruption and bribery, avoid doing business with parties engaged in tax evasion, diversity of government.
For housing investments, this specifically means that, in addition to financial objectives, social and environmental objectives are also considered important. This is evidenced by, among other things, a survey from Savills conducted among investors, in which the vast majority indicated that ESG features more prominently in their investment strategy. This is shown, for example, by specific funds, focusing exclusively on affordable housing. Although this type of investment has a bright future, the environmental component in particular leads to additional costs because there are more stringent environmental requirements.
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