**Document:** Savills Residential Demand Report **Application:** 07/02358/B — Residential development layout for 12 dwellings with associated roads and sewers **Decision:** Refused **Decision Date:** 2008-06-23 **Parish:** Braddan **Document Type:** report / planning_statement **Source:** https://planningportal.im/a/84418-braddan-fields-534051-534052-dwelling/documents/1518127 --- # Savills Residential Demand Report Residential demand from high net worth individuals in the Isle of Man Savills Research 27 November 2008 ## Contents 1 INTRODUCTION...4 2 BACKGROUND...5 2.1 The Isle of Man economy...5 3 HOUSING SUPPLY AND DEMAND...7 3.1 Population and household projections...7 3.2 Island Spatial Strategy...7 3.3 Housing supply...8 3.4 Survey results...9 4 HIGH NET WORTH INDIVIDUALS...11 5 CONCLUSIONS...13 6 IMPORTANT NOTE...14 APPENDIX 1 TREASURY QUESTIONNAIRE...15 APPENDIX 2 ESTATE AGENT QUESTIONNAIRES...17 ## Executive Summary - Analysis of household projections and the residential planning pipeline suggests that there is not enough residential-zoned land to meet demand. Of the 6,000 additional dwellings to be built between 2001 and 2016, current approvals, projected conversions and windfalls amount to 5,449, indicating a shortfall of 551 units. - In February 2006 the Isle of Man (IOM) Government introduced a policy to cap individual income tax payments to a maximum £100,000. This policy was introduced to encourage High Net Worth Individuals (HNWIs) to the Island, in a bid to boost direct tax revenue and economic activity. - Since the tax cap was introduced, an estimated fifty HNWIs have relocated to the island, with the Isle of Man government anticipating further significant in-migration of this demographic group. The 6,000 additional dwelling requirement does not take into account the anticipated influx of HNWIs and their housing needs. - This will be further magnified as HNWIs choose to relocate to low tax jurisdictions to escape difficult market conditions and rising personal tax burdens, particularly from the UK. Cash rich HNWI are the first to react to market conditions and the first to take-up tax and investment opportunities. - The main obstacle to HNWIs locating to the Isle of Man is the lack of appropriate properties meeting their housing needs. There is a shortage of properties in the £1m - £2m price bracket, and existing stock is typically of too poor standard to appeal to this group. Therefore, there is a need to develop purpose built stock that is designed specifically for the target market and within the most sought after price range. - Residential approvals including projected windfalls and conversions does not necessarily indicate what will be delivered to the market. Typically, since 2001, average annual completions have run at 57% of average annual approvals. However, this includes public sector housing. Private housing supply has fallen sharply since 2002 with average annual private completions averaging 43% of approvals since 2001. - Brownfield developments and conversions are the preferred route to provide much of the supply in Douglas and the East in particular (a favoured location for HNWIs locating to the Island). However, these sites often do not give scope for the location and specification requirements demanded by HNWIs. It is therefore essential that some peripheral sites are re-classified for development, or the Isle of Man Government runs the risk of losing HNWIs to other low tax jurisdictions. ## 1 Introduction The purpose of this report is to examine the current supply and demand trends for residential property on the Isle of Man. The focus of the report is on property valued in excess of £1 million. It examines the availability of land for residential use compared to household projections and targets for new housing units as well as the level of demand being created for high valued housing units. The research approach involved both desk-based research and a questionnaire survey. Key documents used in the report include the Isle of Man Strategic Plan 2007, the recently updated Residential Land Availability Study 2008 as well as other documents relating to the economy and treasury department. Questionnaires were used to collect information from local estate agents working in the Isle of Man. In total there are seven estate agents operating in the Isle of Man and three of the five primary agents responded to the survey. A questionnaire was also sent to the Treasury department to establish their views on the potential demand from high net worth individuals (HNWIs) for residential property. A high net worth individual (HNWI) is defined as someone with more than US$ 1 million in net financial wealth, excluding the value of their primary residence. ## 2 Background The Isle of Man is a self-governing Crown dependency. Located in the Irish Sea, it sits at the geographical centre of the British Isles. Approximately 32 miles long and between 8 miles and 15 miles wide, the island has an area of around 221 square miles. The capital, Douglas, is home to 26,218 of its 80,058 population (2006). Of these, 48% were born on the Island, with the majority of the remainder (45%) having been born in the UK¹. The Isle of Man is a low tax jurisdiction with a standard rate of tax on individuals of 10%, and a higher rate of 18%. Corporations are subject to a zero rate of tax, while the profits of banks are taxed at 10% as is the rental (or other) income from land and buildings situated on the island. There is no capital gains tax, wealth tax, stamp duty, death duty or inheritance tax.² In February 2006 the Isle of Man Government introduced a policy to cap individual income tax payments to a maximum £100,000. This policy was introduced to encourage high net worth individuals (HNWIs) to the Island, a means to boost direct tax revenue and economic activity. ## 2.1 The Isle of Man economy The Isle of Man economy is dominated by Banking, Insurance and Business services, accounting for 36% of national income in 2006/07³. High-value professional and service based industries make up over half of national income as shown in Figure 1. Unemployment on the island is very low at 1.6% of the economically active population in October 2008 as compared to 5.8% in the UK. Figure 1 IOM national income by economic activity 2006/07 ![data table or chart from page 8](https://images.planningportal.im/2007/12/457119.jpg) Source: Isle of Man National Income Accounts 2006/07 Beyond banking and finance, the Isle of Man economy has a diverse range of high-value professional / service based industries, such as: - The Isle of Man's Ship Register, supported by international companies offering specialist maritime services; - The Island administers the only centrally located English-speaking offshore register for private and corporate aircraft; - High-tech manufacturers produce essential components for use in submarines, jet aircraft, space shuttles, laser surgery equipment, gas and oil rigs and electric kettles; and ¹ Isle of Man Census, 2006 ² Direct Taxation, Isle of Man Government, 2008 ³ IOM National Income Accounts 2006/07 - The Isle of Man is the most preferred location for non-UK companies wishing to incorporate when listing on the London Stock Exchange's Alternative Investment Market (AIM). 75% of the Indian companies listed on AIM are incorporated on the Island.⁴ The City of London's second Global Financial Centres Index (September 2007) recognised the Isle of Man as 'the leading offshore centre' which emphasises its importance as an offshore location. As a consequence, the island attracts high-value financial and professional service based industries as evidenced by the Island's national income which comprises 50% from these sectors. The Isle's of Man's GDP is estimated at 8% p.a. in real terms and has experienced 25 years of continuous growth. Its GDP exceeds £1.6bn and GDP per-capita is 113% of the UK and 125% of the 15 leading EU economies⁵. It is unsurprising therefore that the Isle of Man's robust economy, strong financial services and competitive tax regime, helps to attract high net worth individuals to the island. ⁴ A Key Facts Guide to the Isle of Man, IOM Government, June 2008 ⁵ A Key Facts Guide to the Isle of Man, IOM Government, June 2008 ## 3 Housing Supply And Demand ![A combined bar and line chart displaying housing statistics, tracking 'Additional households' and 'Total households' from 2001 to 2016.](https://images.planningportal.im/2007/12/457120.jpg) ### 3.1 Population and household projections The Isle of Man has seen sustained population growth since 1961, when it stood at 48,133, rising to 80,058 in 2006⁶. This comprises some 33,390 households, with an average household size of 2.42 persons, down from 2.55 in 1991. Household numbers are projected to grow steadily over the next eight years to 37,269 in 2016, or an average of 400 households per annum as shown in Figure 2. However, household projections are based on past trends repeating again in the future. Recent in-migration to the Isle of Man has included large numbers of high net worth individuals (HNWIs) which has been driven by the favourable tax regime. In this regard, the Isle of Man Treasury estimate that over fifty HNWIs have relocated to the island in the last 12 to 18 months. This trend will not have been picked up by the household projection model because they are derived from historic trends which are projected forward. In addition, anecdotal evidence from Savills suggests that in financially difficult market conditions more people locate to low tax jurisdictions as the general cost of living and personal tax burdens rise. This potential trend was also highlighted in the Treasury's questionnaire response as shown in Appendix 1. The personal tax burden for higher income earners in the UK is set to rise because the UK Labour Government will impose a higher tax rate of income tax of 45% after the next general election (which must be called by May 2010 at the latest). This higher rate of tax is targeting higher income earners and HNWIs. HNWIs in particular, that can react to the changes in personal taxation may as a consequence seek to relocate to more tax neutral jurisdictions including the Isle of Man. Figure 2 Household Growth – 2001-2016 Source: Isle of Man Strategic Plan, 2007 ### 3.2 Island spatial strategy In order to accommodate the increase in the number of households and guide the physical development of the island, the Government has adopted an Island Spatial Strategy (ISS) which is contained with the Strategic Plan. The ISS is effective until 2016 and provides a framework for strategic choices in relation to development and infrastructure investment. Within this, it sets out a 'spatial vision' of future development of the Island based on service centres, key transport links and the main gateways (ports, the airport). Douglas – the principal service centre – is classed as a compact and dynamic eastern area centred on the capital, the major gateway and the focus of the strategic transport network. 2,500 of the 6,000 dwelling housing requirement (42%) between 2001-2016 will be located in the East – where Douglas is located. ⁶ Isle of Man Census, 2006 ## 3.3 Housing supply ![data table or chart from page 11](https://images.planningportal.im/2007/12/457121.jpg) The principal objective of the Isle of Man's housing policy is to ensure that sufficient housing, to appropriate standards, is made available to meet demands created by the growth in population, growth in the economy and changing household sizes. Housing Policy 1 as set out in the Strategic Plan 2007 specifies that provision should be made for 6,000 additional dwellings (net of demolitions) to be built between 2001 and 2016, whilst Policy HP3 states that 2,500 of these will be in the eastern area, which includes Douglas. 6,000 additional dwellings between 2001 and 2016 is broadly similar to the projected increase in households. Private dwelling completions averaged 316 completions per annum between 1998 and 2007. Activity peaked in 2002 as shown in Figure 3, with most recent records showing 190 and 221 annual private dwelling completions for 2006 and 2007 respectively. Although the number of private completions have been steadily falling since 2002, the delivery of public sector housing has fluctuated, rising from 12 units in 2001 to 154 in 2007. In 2007, public sector completions accounted for 41% of total new supply, compared to just 4% in 2001. Figure 3 Total dwelling completions, 1998-2007 Source: IOM Digest of Economic & Social Statistics 2008 Of the 6,000 additional dwellings to be built between 2001 and 2016, planning approvals up to 2007 account for 4,673 units, leaving a shortfall of 1,327 units, as illustrated in Figure 4. The Isle of Man Strategic Plan has also estimated the number of conversions and windfalls that are likely to come forward during the period. These estimates are based on the average number of historic conversions / windfalls per year since 2001 and projected forward for the period 2008 to 2016. In total, an estimated 636 conversions and 140 windfalls are expected to come to the market. If these projections are added to approvals, the shortfall in available or unapproved land is 551 units. Private sector completions of 221 units were 39% of the approvals granted between 2006 and 2007. On average, between 2001 and 2007 total completions (public and private) have averaged 447 units per annum whereas approvals have averaged 779 units. This would suggest that, on average during the period, 57% of approvals have been delivered, albeit it is not possible to exactly match approvals to completions because the approval may have been granted outside the period (i.e. prior to 2001). It does however, suggest that over half of the approved planning pipeline gets delivered to the market. If only half of the approvals granted between 2001 and 2007 are delivered to the market, the shortfall in available residential land is 3,276. Typically, in our experience of analysing planning pipelines in London and the UK, on average 50 to 60% will be delivered to the market. The output of new housing supply will fall substantially over the next 12 to 18 months in the wake of the credit crunch and limited development funding available to the market. Therefore, the level of new supply, especially private supply on the Isle of Man may weaken from its current already low level. Figure 4 Strategic plan targets, approvals and projected approvals 2006-2016 Source: IOM Residential Land Availability 2008 In summary, the Isle of Man's assessment of available land is based on the number of approvals granted between 2001 and 2007 and also projections of the number of conversions and windfalls that are likely to come to the market up to 2016. Schemes that were approved prior to the credit crunch may no longer be financially viable given the movement in borrowing rates and limits on loan to values. It is highly likely that a substantial proportion of approvals will not come to the market and some will be subjected to changes in design and mix and resubmitted for planning approval. Household numbers are projected to grow steadily over the next eight years, an average of 400 households per annum. By comparison, total housing completions were 276 in 2006 and 375 in 2007. This mismatch may lead to a backlog in general housing demand. Importantly, private sector completions have fallen sharply, and were 60% down on the level of output seen in 2002. ### 3.4 Survey results Although the responses to the estate agents questionnaire were limited to 3, the results indicate that from the sales over £1m, the majority of purchases (80%) over the last 12 months were in the £1m to £2m price bracket. Typically, estate agents receive an average of 8 enquiries per month for properties priced within this price bracket and 12 enquiries per month based on all three price brackets. Douglas is the preferred location for most purchaser enquiries. Approximately 50% of enquiries are from potential purchasers seeking to relocate to the island to benefit from the personal income tax cap. ![data table or chart from page 12](https://images.planningportal.im/2007/12/457122.jpg) Figure 5 Number of enquiries per month Source: Survey of local agents in Douglas The Treasury also responded to a questionnaire and indicated the main reasons why potential purchasers do not relocate to the Island. The over-riding factors relate to inappropriate properties to meet their housing needs. The stock that is available tends to be "old or not purpose built". This was also emphasised by the estate agents who indicated that the reasons why most purchasers do not relocate to the island is due to a lack of suitable properties followed by facilities and weather. It is clear from both the estate agents responses and the Treasury comments that purchasers within the £1m to £2m price range are looking for specific houses that satisfy all their needs and can afford to be selective. Key features identified include: - Central location - Privacy - Quality Build - Size and Design - Low Maintenance - Standard of finish - Latest Equipment - View - Acreage - Schools - Ease of access - Bespoke interior / finish This is particularly relevant in the East of the Island and Douglas. Much of the supply in Douglas in particular, will be supplied through brownfield development and conversions, typical of comparable towns in the UK and encouraged through planning policy. Such sites often do not give scope for the location and specification requirements demanded by HNWIs as outlined above. It is therefore essential that some peripheral sites are re-classified for development, or the Isle of Man Government runs the risk of losing HNWIs to other low tax jurisdictions. In summary, the main obstacle to HNWIs locating to the Isle of Man is a lack of appropriate properties meeting their housing needs. There is a shortage of properties in the £1m - £2m price bracket, and existing stock is typically of too poor standard to appeal to this group. The fall in private sector new dwellings is also leading to a reduction in the number of available units for this market. There would appear to be a need for private developers to develop much needed purpose built stock to meet the demand from this growing segment of the market. ![data table or chart from page 13](https://images.planningportal.im/2007/12/457123.jpg) --- *Data sourced from the Isle of Man public planning register under the [Isle of Man Open Government Licence](https://www.gov.im/about-this-site/open-government-licence/).* *Canonical page: https://planningportal.im/a/84418-braddan-fields-534051-534052-dwelling/documents/1518127*