Savills Impacts: Why it’s not just about the price tag

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Author: Sophie Chick, Director, World Research, Savills UK

This blog is inspired by a theme in Impacts, Savills global thought leadership publication and research programme. This year is the ‘disruption issue’, looking at how widespread economic, political, demographic and technological upheaval is changing the world of real estate.

Owning residential property in a major world city, either as an investment or pied-à-terre, is high on the wish list for wealthy buyers but the associated costs of purchasing, holding and selling can increase the price tag by up to a third depending on location.

In our scenario, we’ve assumed a non-resident, overseas buyer is in search of a $2 million house or apartment in any one of 17 key cities, intending to spend fewer than nine months of the year there over a five year period. We’ve looked at local property charges, but to keep it simple haven’t factored in capital growth or relative inheritance tax burdens.

Hong Kong emerges as the most expensive of all our global boltholes. Here, overseas buyers face an additional 30% stamp duty charge and there’s also a penalty of between 10 and 20% for speculators who try to sell within three years. In total our buyer can expect to spend an additional 33.3% above the purchase price.

Second and third spots are taken by Singapore and Tokyo with Sydney the fourth most expensive place both to buy and for overall costs.  In 2017, New South Wales doubled stamp duty for foreign buyers from 4% to 8% in an effort to cool price rises in the city. Moving to Europe, Berlin completes the top five – it’s actually the third most expensive city for a buyer but the exit is easier with no charge on disposal.

In sharp contrast, the cheapest option would be to head to Moscow.  With no stamp duty and just a $65 registry fee, the main costs come when it’s time to sell with the 3.5% agency fee paid by the vendor. Total extras amount to 4.5%.

US cities dominate the middle of the table. Selling costs are high – rising to 8% in New York – as are holding costs, while buying costs are low. Brexit aside, London is one of the most accessible cities in our analysis. Although buying costs are close to 10% of the purchase price, low holding (0.7%) and selling costs (2.3%) make it 12th overall. There is an additional 3% stamp duty tax for second homes payable by domestic and foreign buyers alike.

*The above graph shows buying, holding and selling costs for a $2 million USD property. Our scenario assumes a non-resident overseas buyer purchasing a $2 million USD property (which equates to $2.5 million AUD approx.). This is for use as a second home for less than nine months of the year over a five-year hold. No capital growth has been applied, avoiding the complication of having to forecast that for each city.

Learn more at savills.com/impacts