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Sunday, 30 October 2011

The Construction Business in Jersey


In order to ensure a satisfactory standard of living it isessential that an ‘average’ family can afford to purchase an ‘average family’house.
Apartments are constructed  for sale as investments not homes
Current lending criteria for banks are as follows:
Maximum Lending:  5xAnnual Salary for main earner plus 1x Additional Annual Salary
Average salary [i]£32,448.00 x6= £195,000. Assuming a deposit of 10% an ‘average family’ home in Jerseyshould cost £215,000. An ‘average family’ home costs £435,000 in Jersey.
Whilst you may consider the above a failure of government itis in fact a result of government policies let's move on to examine the mechanisms employed by governmentto artificially inflate house prices:

Income Support
Payments in respect of accommodation for the indolent createa base line for the rental values of properties. The income support payable ona one bedroom property to house one person is currently £661.00 per month[ii] This means that a private individual buying a propertyvalued at £150,000 with a 4% interest rate and 10% deposit will have the mortgage covered if the property is let toa person in receipt of income support. It may be no coincidence that the majority of propertiesconstructed in Jersey in recent times fall into this model. This isconstruction for the purpose of investment, not for the proliferation ofproperties for families.

0% Capital Gains Tax
The lack of Capital Gains Tax in Jersey means that investorsunder the model outlined above will in due course be able to sell the propertiesand make a ‘capital gain’ tax free. The capital investment therefore servessolely to underpin the price of property in Jersey by providing high valuationsto properties which are considered by many to be barely ‘fit for purpose’.

The two causes above fix the bottom of the property marketin Jersey.

The effect of category 1.1(k) is to provide a market and anunderpinning of prices for the high value properties. By effectively ensuring a£1,000,000 price ticket for the largest properties the top of the market itset.

By reducing the qualification period for category 1.1(h) ofthe housing regulations the government can artificially stimulate additionaldemand for the mid range properties, by increasing the qualification period itcan artificially stifle demand.

By granting a monopoly to the legal profession in theconduct of conveyance, unusually it is the only matter before the Court forwhich a person is not allowed to represent themselves (in contradiction of theEuropean Convention on Human Rights, Right to Justice) this places anadditional expense in the execution of property transactions. In the UK conveyancecosts range between £150 and £600 in Jersey they are substantially greater.This is both as an additional cost to purchase but perhaps more importantly asa barrier to ‘downsizing’ by limiting the capital release on moving to a moreappropriately sized property. This artificially creates additional demand forfamily homes by ensuring that family homes are the residence of just one or twoelderly persons.

By creating additional jobs of questionable necessity in the public sector thegovernment of Jersey places further demand on housing in Jersey. Jobs which arefilled remove workers from the real economy which leads to increased immigration and greater demand for the finiteresource of housing in Jersey.

Through the above I trust it is self evident that not onlyis the government not doing anything to allow an average family access toaverage family homes but it is actively working to ensure that average familyhomes will perennially remain beyond the reach of average Jersey families. The high cost of accommodation is further damaging to the wider economy as it forces up the cost of labour.

The Future of House Prices in Jersey
It should be clear despite a recent government adjustment to the way in which statistics are produced that the price of housing is falling. With continuing difficulties in achieving lending from insolvent banks, with no prospect for any increase in salaries in real terms, with increasing unemployment, the future for house prices looks like it is going to continue to decline. If house prices are falling at a time of major inflation, then the real loss is higher than it appears on paper. Throughout the 1970's property prices sky-rocketed along with the rate of inflation. These days house prices and inflation are moving in different directions.

Buying a house currently is the surest way to lose your money.