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Insight & Opinion

Could overseas investment in UK property spike after coronavirus?

Author: Gemma

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UK property went into a temporary hiatus during the coronavirus outbreak, but as the government takes its first steps to ease lockdown restrictions and get the economy back on its feet, there are already signs the housing market will be one of the first sectors to return to something like normality.

Measures introduced last week mean property viewings can now be carried out – with social distancing in place – and businesses like estate agents, removal firms and conveyancers can get back to work.

There is still a long way to go before the market is able to make a full return to pre-crisis conditions, but its track record for resilience and underlying strength suggest British real estate will recover from the effects of the pandemic.

As far as investment in the sector is concerned, one trend that will be interesting to track as the coronavirus situation steadily improves is demand from overseas. Foreign investors who are keen to make the most of the current unique circumstances could find some attractive opportunities in the UK.

Sterling struggles

Exchange rates are a key consideration for international investors. When you’re dealing with the large sums involved in a property acquisition, even minimal changes in the rate of exchange between one currency and another can have major repercussions.

Ever since the Brexit vote in 2016, the British pound has been on a steady downward trend against other key currencies from around the world. In March this year, when the pandemic was at its peak, sterling saw a particularly steep and sudden drop against currencies like the UAE dirham, the Chinese yuan, the euro and the US dollar.

The Financial Times reported that the pound was the worst-performing major currency in May 2020, partly because of fresh concerns about a no-deal Brexit. It is the third-weakest major currency so far this year, with only the New Zealand dollar and Norwegian krone performing worse.

Experts have suggested the current low value of sterling – which equates to increased buying power for foreign investors – is enough of an incentive to make up for the recently announced increase in stamp duty on overseas buyers. Chancellor Rishi Sunak announced in his 2020 Budget that a 2% stamp duty surcharge would be applied to non-UK property investors from April 2021.

However, Domenica di Lieto, chief executive of Emerging Communications, a marketing consultancy based in London and Shanghai, said this new financial barrier won’t deter Chinese investors from buying UK property.

“The fall in sterling more than makes up for it, and the UK still compares well with overseas buyer tax rates in competing locations, such as Hong Kong (15%), Canada (between 15 and 20%), and Singapore (20%),” she said.

Hiten Ganatra, managing director of Visionary Finance, has predicted a “flurry of activity to close deals” with overseas buyers in the coming year.

Pent-up demand

Many would-be buyers and renters have been forced to put their plans on hold during the current health crisis, creating a backlog of housing demand that overseas investors will be ready and waiting to capitalise on.

Knight Frank has highlighted the level of pent-up demand waiting to be released as lockdown restrictions are eased, with property enquiries spiking after the government took its first steps to reopen the housing market on May 13th.

The firm said the rebound in enquiries was bigger than the gains recorded after the general election result, which was dubbed the ‘Boris bounce’. Overall traffic from the internet and social media was the highest for a year and 8% above the previous peak recorded in early February.

Andrew Groocock, regional head of sales for Knight Frank’s City and East region, said: “This shows what happens when you temporarily suppress pent-up demand that had been building for years. It’s early days but the ‘Boris bounce’ may well be followed by a ‘lockdown lift-off’.”

It’s estimated there are 450,000 renters and buyers waiting to act on housing plans they were forced to put on hold because of the Covid-19 crisis, the BBC reported.

Housing secretary Robert Jenrick commented: “Our clear plan will enable people to move home safely, covering each aspect of the sales and letting process, from viewings to removals.”

The well-publicised barriers to buying a home in the UK, combined with the financial and economic repercussions of the pandemic, mean many people will be relying on the private rental market to find available housing.

Buy-to-let property investors can, therefore, expect a strong flow of demand when the property market is back on its feet and renters are ready to move.

Price potential

The coronavirus pandemic will have an inevitable depreciative effect on house prices, owing to the slowdown in transaction activity during the crisis. This will provide opportunities for buyers searching for bargains in areas where they feel confident prices will return to a pattern of growth in 2021 and beyond.

Much remains unclear and there have been various estimates of how big a fall the market can expect to see this year. Knight Frank has forecast a 7% drop in prices, on the assumption that there has already been a 5% decline since the start of the crisis.

According to Savills, the most extreme scenario would see prices fall by 10% in 2020, but this would be followed by steady growth over the following years, meaning a cumulative price increase of around 15% over the course of five years.

This paints a picture of a buyer’s market, where overseas investors can take advantage of favourable exchange rates and falling prices this year to gain maximum benefit from the growth expected in the years to come.

Past trends have shown that savvy overseas investors are quick to capitalise on situations in the UK where external factors have a dampening effect on prices. The 2008 financial crisis was followed by an influx of foreign investment in property, and there’s a strong possibility the market could witness the same trend after the Covid-19 pandemic.

Experience Invest can provide personalised advice and answer questions you might have about investing in UK property right now. Just give us a call on +44 (0)207 834 1113, or book a free consultation.

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