When the British public voted to leave the European Union (EU) last summer, there were concerns that the result would spell catastrophe for the economy, and the property market was predicted to be one of the worst hit.
It was thought that foreign investors in particular, unsure of their rights or legal standing to buy, rent and sell property in the UK after Brexit, would turn their back on the market and look to spend their money elsewhere as a result.
However, while there was a short period of uncertainty after the votes were counted, ever since then, there’s been a rise in the number of people looking to spend money on UK property investments overseas. At last week’s Cityscape Global, we found this to be the case when it comes to those from Dubai and elsewhere in the Middle East, but it’s a trend that’s been seen across the world in the last 15 months.
And while it’s true that factors such as the traditional stability of the UK property market, tenant demand and strong yields are all important in this rise in investor sentiment, there’s one that has become even more prominent; currency value.
The pound since Brexit
The pound has suffered something of a torrid time since the polling stations closed their doors last June, and it started right away. After the result was announced, the pound immediately slumped to a 31-year low against the dollar, dropping from $1.50 before the result, to $1.33 immediately after.
In the weeks and months following this, the pound fluctuated, and would fall further after initially regaining some of its value. Even at the turn of the year, a full six months after the Brexit vote, the pound sat at $1.24.
And now, 15 months since the country voted to leave the EU, things don’t look as bad as they might have done, but the pound is still not back to where it once was. Despite the economy becoming more stable and worries about what Brexit will mean becoming far fewer, sterling has still yet to return to the pre-referendum levels, with the negotiations with the EU still looming. At present, the pound’s value sits at around $1.32 on average.
Property investors and the falling pound
While an unstable and falling pound is bad news for the economy, and for people in the UK in general, it’s fantastic news for those who are looking to invest in British property for overseas. Why? It’s rather simple; a weaker pound plays into investors’ hands at the point of exchange. If their money is worth more against the pound than it used to be, then they get more stock for their spend.
For example, anyone from the Middle East who was coming to the UK before Brexit would have had far less to spend than they do today. If they had 750,000 United Arab Emirates Dirham (AED) to spend the day before the referendum, they would have had approximately £138,000 available for property in the UK.
However, fast forward through 15 months of uncertainty and problems for the pound, and it’s a different story entirely. That same investor, with the same 750,000 AED, would now have around £158,000 to spend on property in the UK after exchange.
This change in currency exchange rates thanks to the weak pound clearly means that investors are able to get more for their money than they would have before the referendum. And this is why the UK has become the number one investment hot spot for those from Dubai and the Middle East. By spending the same amount of money today as they would have in mid-2016, they can get £20,000 more in stock.
This allows investors to make a much better return on what is essentially the same spend. With this in mind, it’s clear to see why the UK remains one of the most popular places in the world for financially savvy foreign investors to spend their money, even at a time when to the untrained eye, it might not look like the best option around.