Investment News

Building onwards and upwards – what do investors need to know?

by International Commercial Investment on September 30, 2020

Source: Property Investor Today

With changes to the use class system and permitted development rights now in force, Christina Daniels and Marisia Beard of leading law firm BDB Pitmans outline what this means for landlords and property investors going forward.

As of the August 1, planning applications are no longer required to add up to two additional storeys to homes, commercial and mixed-use buildings; demolish and rebuild unused buildings as homes, and repurpose commercial and retail properties.

Building upwards

The construction of up to two additional storeys is now permitted where the existing house is two or more storeys, or one additional storey where the existing dwellinghouse consists of only one storey. The changes also enable the construction of up to two additional storeys of dwellinghouseimmediately above a building within Class A1 (shops), A2 (financial and professional services), A3 (restaurants and cafes); B1(a) (offices), betting office, payday loan shop or launderette; or mixed-use buildings combining two or more uses above or C3 (dwellinghouses) and one of the uses above. For terraces, where the existing building consists of one storey, only one additional storey is permitted.

The permitted development rights (PDR) include engineering operations, such as strengthening existing walls and foundations or installing services. as is reasonably necessary to construct the additional storeys, provide safe access and egress, and storage, waste or other ancillary facilities reasonably necessary to support the new dwellinghouses.

  • What are the restrictions?

The new rights donot apply to dwellinghouses converted to residential using PDR, those constructed before 1 July 1948 or after 28 October 2018 or where the existing house has already been enlarged by the addition of one or more storeys – whether under permitted development or otherwise.

Likewise, they do not apply to commercial/mixed-use buildings less than three storeys in height above ground level, constructed before 1 July 1948 or after 5 March 2018, in a use or mixed-use other than those listed above, or a use falling within Class C3 on 5 March 2018.

Other restrictions include the introduction of maximum roof heights relating to additional storeys on dwellinghouses and the internal floor to ceiling height of additional storeys which cannot be more than the lower of 3m and the existing height of any storeys in the main part of the existing house/building. The new storeys must only be constructed on the main part of the building, excluding any extensions which are lower. There cannot be any visible support structures on or attached to the exterior – and materials used in exterior works must be of similar appearance to the existing building. Any new dwellinghouses built above commercial uses must also be flats.

  • What about prior approval?

Despite the changes, there are situations in which the developer must still apply to the local planning authority (LPA) for prior approval.

This might include where there are predicted impacts upon transport and highways, air traffic and defence assets, and the ability to construct safe access and egress, and storage, waste or other ancillary facilities. Consideration must also be given to the impact on the amenity of the existing buildings and neighbouring properties – as well as adjustments to the external appearance of the building. Developers are also responsible for considering the impact of noise from the commercial premises on the new dwellinghousesRisks, such as those of contamination and flooding, must be assessed.

Demolishing vacant buildings

Planning permission is no longer required to demolish and rebuild vacant residential and commercial buildings if they are rebuilt as homes. This applies to vacant buildings that fell within use class B1 or free-standing purpose-built residential blocks of flats (C3) on 12 March 2020. The demolished building can be replaced by either a single detached dwellinghouse or a purpose-built block of flats.

  • What are the restrictions?

The building must have been built before 1 January 1990, have a footprint of 1,000sqm or less and been vacant for at least 6 months prior to applying for prior approval. The redevelopment must be a single new building within the footprint of the existing building, with a maximum footprint of 1,000sqm and maximum height of 18m. Note that this does not apply to listed buildings or scheduled monuments, or land within their curtilage.

Furthermore, land cannot be occupied under an agricultural tenancy, unless express consent is given from the landlord and tenant. This also does not apply to the demolition of part of a building or allow the demolition of more than one building within the curtilage and the incorporation of any additional footprint.

  • What about prior approval?

Prior approval is also needed in respect to the transport and highway impacts, contamination and flood risk, impact of noise from other premises on the future residents. design and external appearance of the building, adequacy of natural light in all habitable rooms, impact of introducing residential use into an area and the impact on the amenity of the new building and of neighbouring premises.

The developer must also provide drawings showing dimensions of the old and new buildings, detailed floor plans, a construction management plan and a heritage and archaeology statement.

Repurposing High Streets

Changes have been introduced to the Use Classes Order to allow for a mix of retail, business and leisure uses to reflect the changing landscape of the high street whilst protecting community assets.

This includes the introduction of Class E – a new town centre use enabling buildings to change use from uses previously falling within Classes A1, A2, A3, B1, D1 and D2, or a mix of these uses, without applying for planning permission.  These changes also apply to office and retail parks. Classes F1 and F2 group community assets such as schools, libraries, swimming pools and local shops. Interestingly, pubs, wine bars, takeaways, cinemas, bingo halls and concert and dance halls are now included as sui generis, meaning that planning permission is required to secure a change of use.

A1, A2, A3 and B1 assets automatically fall within Class E from 1 September 2020, which will give developers much more flexibility. However, buildings will need to be brought into a use permitted under an existing permission (if not being used or occupied as such) before changing to another Class E use. Planning applications submitted prior to 1 September 2020, will be determined in accordance with the use classes in effect at the time of submission. It is also important to remember that there may be restrictions on the use which limit the application of Class E contained in leases or planning conditions and that changes to permitted development rights will not follow until 31 July 2021.

The changes remove some of the formalities surrounding planning applications, providing developers with welcome flexibility to redevelop otherwise unused properties, provide much-needed housing and utilise sites more effectively. On the other hand, those with newly sui generis uses will have less flexibility and be subject to LPA control. Landlords and investors will need to be alive to these changes when looking at leases and planning conditions to see the extent to which a use is authorised. 

It is important to check local designations and that LPAs have not restricted the use of the new PDR through Article 4 Directions. However, the changes to the Use Class Order currently hinge on the outcome of a judicial review, with a challenge expected to be heard in mid-October. 

*Christina Daniels, planning partner and Marisia Beard, associate at BDB Pitmans

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International Commercial InvestmentBuilding onwards and upwards – what do investors need to know?

INSIGHT: U.K. Property Investment for Nonresidents in the Age of Covid

by International Commercial Investment on August 20, 2020

Source: Bloomberg Tax

The U.K. government has introduced a tax holiday for buyers as one of its measures to stimulate the property market. Alpa Bhakta of Butterfield Mortgages Limited takes us through the detail and looks at the potential tax issues for foreign investors in the U.K. property market.

While we seem to have passed the peak of Covid-19 cases in the U.K., there are still immense challenges facing the country as it begins its post-pandemic recovery. Market volatility is rife; and there are still unanswered questions regarding the U.K. economy’s ability to recuperate and recover the losses incurred.

For the moment, the U.K. government has been actively encouraging a return to relative normality through targeted reforms and policies that support businesses, investors and consumers. These measures are by no means permanent, but rather, their aim is to reinstate confidence and put the wheels of the economy back into motion.

One of the more pronounced steps taken has been the introduction of a Stamp Duty Land Tax (SDLT) holiday; something I have commented extensively on throughout the year.

The SDLT holiday has been in place in England and Northern Ireland since the Chancellor Rishi Sunak announced his mini-budget on July 8, 2020. By increasing the minimal threshold of SDLT to 500,000 pounds ($654,500) for property sales until March 31, 2021, buyers could be exempt from paying as much as 15,000 pounds on their next purchase.

The aim of the tax relief is simple—to encourage buyers to return to the property market. In turn, this will boost the number of transactions taking place and contribute to the positive growth of house prices. So far, it has been having the desired effect. Nationwide’s House Price Index for July noted that annual house prices had grown by 1.5%. What’s more, prices were up 1.7% month-on-month.

This is welcome news for the Chancellor, but my advice is to not to become complacent. Ensuring that house prices will continue to steadily increase over the next few months is key.

Foreign Capital is Vital to the U.K.’s Property Recovery

The SDLT holiday applies to all transactions, including purchases being made by non-U.K. residents. The government clearly wants to encourage capital injections from domestic and international sources, and so far, this holiday has been well received.

U.K. real estate is an attractive asset for international buyers, particularly when we look at the top end of the market. For example, in 2019 alone, non-U.K. residents were responsible for over half (55%) of all prime central London (PCL) property transactions. Its historical resilience and rate of capital growth over long-term periods ensures consistent market demand for bricks and mortar in London.

Covid-19 has not dampened this demand, particularly when it comes to buyers based in Hong Kong, mainland China, and Singapore. According to Beauchamp Estates, the amount of Hong Kong and mainland Chinese investment it handled into PCL property between December 2019 and June 2020 totaled $374 million. It also found that this group of buyers accounted for 20% of deals above 10 million pounds in the capital.

On top of this, the political situation in Hong Kong is compelling investors in the jurisdiction to consider stable markets with assets that can deliver modest capital growth in the medium- to long-term. The PCL property market is a popular destination, and based on the conversations we’ve been having, there is good reason to expect an influx of investment from these investors over the coming months.

In light of this, it is important for non-U.K. residents to be fully aware of the different tax issues they could face when investing in property.

What Tax Issues do Non-U.K. Residents Need to be Aware of?

The tax framework governing the U.K. property market has undergone significant changes in recent years. While still encouraging foreign investment into residential and commercial real estate, the changes have meant that nonresident owners of property are now subject to more rules and regulations. This is particularly true when it comes to managing a property that is generating income, such as a buy-to-let investment.

To better understand the taxation regime, it is helpful to understand the taxes that apply when buying and selling property in the U.K.

When Buying a Property…

SDLT is applicable to all property transactions involving non-U.K. residents. While it is initially calculated in bands based on the value of the property, international buyers are also subject to a surcharge. This surcharge applies to all transactions whereby the buyer is purchasing a property in addition to their primary residence, be it a buy-to-let investment or a secondary residence. Again, this surcharge is calculated based on the value of the property.

In light of the current circumstances, non-U.K. residents are exempt from paying SDLT on the first 500,000 pounds on all property sales. However, the surcharge still applies during this holiday period. What’s more, the government will be introducing a further SDLT surcharge of 2% that will be applicable to all non-U.K. buyers in April 2021. This was initially announced in the 2020 Spring Budget and it is not yet known whether this surcharge will come into force next year as planned, or be delayed as a means of encouraging further foreign investment into British real estate.

When Selling a Property…

Capital gains tax (CGT) is paid by the seller once the transaction has been completed. In 2015, it became mandatory for all non-U.K. residents to pay CGT. Prior to this, international sellers were exempt from paying the tax if they had been classed as a non-U.K. resident for five consecutive years. The tax is calculated by subtracting the sale value from the original purchase value. At the moment, CGT is charged at the rate of 28% when the total taxable gains and income are above the income tax basic rate band. If this is not the case, the rate drops to 18%.

CGT is important to understand for those international buyers who are leveraging U.K. property for short- and medium-term gains. What’s more, significant changes to CGT could be on the horizon. Chancellor Rishi Sunak has ordered a review of the tax which could result in the introduction of sweeping reforms in the 2020 Autumn Budget. Based on the economic impact of Covid-19, such a review could lead to an increase in the CGT rate.

Aside from the taxes linked to the buying and selling of real estate, international investors also need to be aware of the tax that they are liable to pay when owning a property. The nonresident landlord scheme applies to those landlords who live abroad for more than six months a year: even if they are a primary resident in another tax jurisdiction, they are still required to pay tax to the U.K. government in the first instance. A tax credit can then be used in their home country to ensure they are not double-taxed. Of course, this process is managed on a case-by-case basis depending on the legislation that is currently in place between the U.K. and the nonresident landlord’s home country.

Taking Advantage of Property Investment

The SDLT holiday will no doubt encourage an influx of capital from volatile markets into U.K. real estate. For those planning to diversify their portfolios and take advantage of the bricks-and-mortar discounts in the coming months, it is necessary to understand the different taxes that currently apply to international investors.

The tax framework governing property purchases in the U.K. can be complex and overwhelming at times. At the same time, it could be subject to wide-sweeping changes as the government considers ways of stimulating investment and raising revenue in response to Covid-19. Such potential adjustments are understandable given the economic severity of the coronavirus pandemic. In any event, it will be advisable to consult with a wealth adviser or financial professional when considering investing in U.K. property.

Alpa Bhakta is the CEO of Butterfield Mortgages Limited, part of the Butterfield Group and a subsidiary of The Bank of N.T. Butterfield & Son Limited.

The author can be contacted at: alpa.bhakta@butterfieldgroup.com

The opinions expressed in this article are those of the author and do not necessarily reflect those of Butterfield Mortgages Limited or the wider Butterfield Group.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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International Commercial InvestmentINSIGHT: U.K. Property Investment for Nonresidents in the Age of Covid

UK inward investment projects increase in 2019

by International Commercial Investment on July 10, 2020

Source: Gov.uk

Department for International Trade (DIT) statistics showing the number of foreign direct investment (FDI) projects in the UK for the financial year 2019/2020.

Figures from the Department for International Trade published today (10 July), show the UK attracted 1,852 new inward investment projects in 2019/2020 financial year, representing a 4% increase on the previous year.

Today’s figures show the US continues to be the number one source of foreign direct investment in the UK, delivering 462 projects and 20,131 jobs, while India is now the UK’s second largest source of investment followed by Germany, France and China and Hong Kong. Australia and New Zealand were responsible for 72 projects and the Nordic and Baltic region 134, an increase for both regions.

England, Wales and Northern Ireland, all saw an increase in the number of projects each nation attracted, whilst Scotland saw a decline on the number of projects from the previous year.

While the number of new jobs as a direct result of foreign investment has declined – a global trend as seen in other FDI reports this year – the number of UK jobs safeguarded by FDI increased by 29%. DIT worked closely with existing investors to safeguard 26% more jobs compared to 2018 to 2019, demonstrating the broad range of support DIT delivers for the UK economy by promoting investment.

International Trade Secretary, Liz Truss said:

These figures further demonstrate the resilience of the UK economy and the work of the Government to continue to build and attract inward investment into the UK. Future trade agreements will deepen our economic relationship with key sources of investment such as the US, Japan, Australia and New Zealand.

There is still work to be done in our levelling up agenda, to ensure all regions of the United Kingdom reap the benefits of inward investment, increasing jobs and prosperity across the nations, and these free trade agreements will contribute to this.

Developing key sectors such as advanced manufacturing, life sciences and renewable energy will help us to rebound post-pandemic and build on our attractive business environment across the UK for investors around the globe.

This year, DIT’s statistics also include the Cambridge and Oxford Arc, a priority area for government, while the GREAT Investors Program data has also been included showcasing the strengthening of growth capital investment in the UK.

Background

See Inward Investment Results for 2019 to 2020.

The Financial Times FDI Report 2020

  • The Financial Times FDI Report 2020 highlights that the UK remains top in Europe on attracting FDI projects and on greenfield capital expenditure.

EY Attractiveness Survey 2020

  • The latest attractiveness report by EY shows that the UK lost its top spot to France as most attractive destination in Europe for foreign direct investment, however remains one of the most attractive destinations for investment in Europe with over 1,100 inbound investment projects in 2019, more than Germany and Italy combined; an increase of 5% despite a challenging global climate.

UNCTAD World Investment Report 2019

  • The latest data by UNCTAD showed that by the end of 2019, the total value of the UK’s inwards investment stock was $2.1tn, the highest in Europe and second highest in the world. The value of the UK’s inwards stock was also worth more than Germany and France combined.

ONS

  • ONS’s latest National Statistics (to the end of 2018) show the inward FDI stock is at the highest level recorded (£1.521 trillion).

Forbes ‘best countries for business’ 2019

  • The UK was found to be the top country for doing business in Forbes’ 2019 report, a measure which ranks countries according to how business friendly they are based on 15 different factors from property rights to investor protection.

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International Commercial InvestmentUK inward investment projects increase in 2019

EU shocked as investment in Britain booms

by International Commercial Investment on June 20, 2019

Source: The Express

BRITAIN has maintained its position as Europe’s foremost investment hub by attracting more business than Germany and France combined, new United Nations Conference on Trade and Develop figures reveal. As global confidence grows in Britain, we retained our position as the top destination in Europe for foreign direct investment. The country managed to attract £1.48 trillion of inwards investment stocks in 2018, which is more than Europe’s next biggest economies – Germany and France. This leaves Britain the third-largest investment hub in the world, behind the United States and China. Berlin managed to only attract £739billion and Paris just £649bn as both capitals struggle to establish themselves. Over the past year the value of inward stock into the UK increased by 21 percent, compared to just one percent in Germany and a six percent fall in France. Between 2010 and 2018, the value of these inward stock investments into the UK have increased by 77 percent. International Trade Secretary Liam Fox lauded Britain’s economy for beating off competition from the “impressive” Germany and France. Dr Fox said: “The figures prove the British economy is by far the most attractive place in Europe for foreign direct investment, securing more than the impress economies of Germany and France combined. “The UK’s pro-business environment is what makes it one of the most prosperous countries in the world to invest in. From our booming tech industry to our world-leading financial services sector, investors from all over the world see Britain as their destination of choice for relocation. “Despite global headwinds getting stronger, the British economy continues to demonstrate its resilience to operate in an increasingly uncertain global economic environment.” Global foreign direct investment has, however, fallen to its lowest level since the financial crisis as richer countries lead the world into a retreat from a “a heyday of export-led growth”, according to the UN report. The 13 percent worldwide investment drop represents the third consecutive year of slump. Japan, China and France are the world’s largest outward investors, according to the report. Mukhisa Kituyi, secretary-general of the United Nations Conference on Trade and Development, said: “For some time now, the global policy climate for trade and investment has not been as benign as it was in the heyday of export-led growth and development.” “The demand for investment is as strong as ever, the supply is dwindling and the marketplace is less friendly then before,” added Mr Kituyi. read more
International Commercial InvestmentEU shocked as investment in Britain booms

London rents rising almost three times faster than wages, research finds

by International Commercial Investment on June 5, 2018

Source: The Independent
The price of renting a two-bedroom flat in London has risen at almost three times the rate of earnings growth since 2011, new research has revealed.

While the average rent for a two-bed in the capital soared 26 per cent to £1,500 in the six years to 2017, earnings grew just 9 per cent, research by the GMB union found.

In 16 of 33 London boroughs, rent on a two-bedroom flat jumped more than 30 per cent over the same period, while across England rents rose 18.2 per cent to £650 per month.

Greenwich experienced a 50 per cent rise in rents for the same type of property to an average of £1,350 a month – the biggest rise in the capital, while local wages increased just 7.2 per cent.

Warren Kenny, the GMB’s London regional secretary, said high wages were here to stay and warned that younger workers faced living in private rented accommodation for longer.

He called on employers to pay higher wages to staff to enable them to afford to rent.

“If employers don’t respond with higher pay they will face staff shortages as workers, especially younger people, are priced out of the housing market,” Mr Kenny said.

“It makes little sense for these workers to spend a full week at work only to pay most of their earnings in rents.

“There is a massive shortage of homes for rent at reasonable rents for workers in the lower pay grades.

“There is no alternative to higher wages to pay these higher rents, plus a step change in building homes at reasonable rents.”

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International Commercial InvestmentLondon rents rising almost three times faster than wages, research finds

Tax reform could boost London’s housing market

by International Commercial Investment on May 3, 2018

Source: Financial Times

For years, London’s property market has been a tale of rising prices and ever-increasing demand. But enthusiasm for housing in the UK capital appears to have plateaued. Similarly to the rest of the country, the combination of economic uncertainties and tax changes has resulted in a steady drop in purchases.

According to a new survey from the Royal Institution of Chartered Surveyors, demand for properties has fallen for the 12th consecutive month. The drop has been sharpest in London and the south-east of England. The report also said that prices across the whole of the country are flat, while new instructions from sellers have fallen for the seventh month in a row. Respondents expect the slowdown to continue.

Several factors could be responsible. The UK’s volatile political climate may have hit investor confidence. While the very top end of the market has stagnated for several years, the uncertainty of two general elections could have turned off other segments of the market, too. Brexit could also hold back transactions, as buyers wait to see the result of negotiations. A smooth departure from the EU is still far from guaranteed.

Interest rates have also hit the housing market. Last November’s rise in the Bank of England benchmark rate, to 0.5 per cent, was the first in a decade. The BoE’s Monetary Policy Committee has hinted that further increases are on the horizon. Inflation remains 1 per cent above the BoE’s target, so those with variable-rate mortgages are reluctant to contemplate further borrowing. The Rics report suggests the slowing housing market could even affect deliberations over another rate increase in May.

Although rates remain historically low, mortgage affordability is still a challenge. Until recently, increases in London housing prices came while banks could not make more than 15 per cent of their loans to highly stretched buyers.

Some sellers have also refused to accept that house prices are under pressure. So instead of settling for lower offers, owners are opting to take their homes off the market.

Another factor for the market slowdown is taxation changes. In 2014, then chancellor George Osborne revamped stamp duty to scrap the slab system and replace it with a sliding scale, based on the cost of the property. A tax-free bracket was introduced for homes up to £125,000, plus a new tax for the upper brackets.

The critical threshold was £937,000: purchases over that level paid more stamp duty under the new system. The average London property price is £486,000; all the same, a significant part of the capital’s property market was affected. A year later, Mr Osborne introduced an additional 3 per cent stamp duty tax on properties purchased for renting and second homes.

These changes were designed to balance the market. Their impact, however, was to create disincentives to sell London houses. Instead of trading up or down, homeowners appear to have opted to stay put.

Stamp duty, like other transaction taxes, is arbitrary and inefficient. It could be scrapped entirely and replaced with a reformed council tax that adequately reflects the true value of properties. Purchases of expensive properties still need to be taxed in some form: the housing market cannot be titled in favour of the high end.

Stamp duty reform would be hard to achieve. Even if it succeeds, it would not eliminate all the pain of deflating property prices. But unblocking the top end of the market will have benefits for all London property owners.

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International Commercial InvestmentTax reform could boost London’s housing market

London property is worth more than Bristol, Birmingham, Glasgow, Manchester, and Edinburgh combined

by International Commercial Investment on February 24, 2018

Source: Business Insider

London’s property market is worth a total £1.5 trillion according to new figures from Zoopla — more than twice the value of the nine other most valuable property markets in the UK combined.

Zoopla’s figures suggest that the value of London property is 13 times higher than that of its nearest rival, Bristol, which has a property market worth £115.2 billion. London represents just over 18% of the entire UK property market by value.

However, London property prices grew the slowest out of any of the top 10 hotspots last year, according to Zoopla’s figures. House prices in the capital rose by just 1.54% over the last 12 months.

Zoopla’s rival Rightmove said last week that London house prices have now moved out of their “boom” phase after nearly two decades of rapid price rises.

Lawrence Hall, a spokesperson for Zoopla, said in a statement: “It comes as no surprise that London is significantly more valuable as a residential property market than any other British city.

“However, the data does show that, in comparison to cities further north and across the Scottish border, the rate of growth in London has slowed. The capital may be worth almost 10 times more than Sheffield, but Britain’s Steel City wins in the growth rate stakes.”

House prices in Sheffield grew by 5.63% last year according to Zoopla. Here’s Zoopla’s full table of the top 10 cities by property market worth:

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International Commercial InvestmentLondon property is worth more than Bristol, Birmingham, Glasgow, Manchester, and Edinburgh combined

U.K. House Prices Surged in January as Few Homes Come to Market

by International Commercial Investment on February 1, 2018

Source: Bloomberg

U.K. house prices rose in January as a shortage of properties coming up for sale offset an underlying slowdown in the market.

Values increased 0.6 percent from December, lifting the annual gain at 3.2 percent, Nationwide Building Society said on Thursday. While that’s more than the December rate of 2.6 percent — and the fastest since March — it’s still well below the pace of recent years.

The property market has been hurt by slower economic growth and a squeeze on consumers’ incomes since the referendum to leave the European Union in 2016. The Royal Institution of Chartered Surveyors said last month that activity remains subdued, and mortgage approvals fell to a three-year low last month.

“The acceleration in annual house price growth is a little surprising,” said Robert Gardner, chief economist at Nationwide. “The lack of supply is likely to be the key factor providing support to house prices.”

The average house price in the country rose to 211,756 pounds ($300,000) from 211,156, the report showed.

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International Commercial InvestmentU.K. House Prices Surged in January as Few Homes Come to Market