New Experience Invest review
It has been an interesting 12 months. We have seen a Brexit referendum, the election of Trump and a wave of changes throughout the EU.
Despite these changes, property fundamentally is a secure asset class, offing strong rental returns and capital appreciation in the long-term.
In a time of significant change, this Experience Invest review looks at how the UK’s property sector has fared in 2016.
Important dates in the calendar
The Experience Invest review will take the above dates into consideration.
Residential property market
The UK’s residential property market started 2016 with a boom. Investors flocked to the sector to secure buy-to-let properties and second homes before an additional 3% Stamp Duty tax was applied to current rates.
In the run-up to the tax increase, buy-to-let mortgages increase by 163% when compared to the previous year (Council of Mortgage Lenders) and there was an 8% rise in the amount of rental properties available in Q2 2016 (Rightmove).
House prices continued to soar at the start of the year reaching a 10% peak in March – spurred by an influx of BTL landlords – however, prices have increased at a much slower rate since the start of the year.
Data from Halifax has shown that quarterly house prices (September to November) were 0.8% higher than the previous quarter.
The annual rate of UK house price growth has remained strong despite Brexit fears and has increased by 6% in the 3 months to November – when compared to the same period in 2015.
The Bank of England’s decision to lower interest rates in August to 0.25% has helped keep buyer demand strong in a time of economic uncertainty. Low borrowing coupled with an increasingly high demand for property, and a low new-build pipeline, has helped to secure the UK’s residential property market’s performance in 2016.
Commercial property market
The UK’s commercial property market has had a turbulent year.
June’s Brexit vote was the hardest on this sector, with the Bank of England’s Financial Policy Committee forecast that there is ‘risk of further adjustment’ as a knock-on effect of Britain leaving the EU.
Yet, many investors believe that now is the time for investment in this area of the market.
Figures released by Savills have shown that investors from Asia have put £4.5 billion into London’s central office market in the first 10 months of 2016.
The fall in the value of sterling has attracted buyers from Asia, who are keen to take advantage of favourable exchange rates, and to avoid rising costs in their home markets.
“We expect London to remain attractive to Asian buyers who have benefited from the devaluation of sterling and foresee their market share in London commercial property being higher in 2016 compared to recent years,” Rasheed Hassan, head of cross-border investment at Savills, commented.
However, some experts believe that London’s market will feel the increased effects of Brexit in 2017.
“During 2017 the area of the market that is most likely to experience declines in capital values is City and West End of London offices,” Ainslie McLennan, co-manager of the Henderson UK Property PAIF recently explained to Investment Week.
Commercial property in other UK cities are expected to weather the storm better than the Capital.
John Duckworth, lead director for UK occupier services at JLL, said: “More firms than ever before are assessing their portfolios to consider national on shore locations across the UK. This is a trend that we see as only accelerating in the years to come.
“Many are exploring ways to reduce cost, attract talent, and drive efficiencies in their operations. UK cities from Bristol to Edinburgh are benefiting as firms seek to take advantage of the talent pools and cost benefits of an alternative UK presence to complement their London offices.”
Student property market
It was initially thought that Brexit would have a negative effect on UK universities however, the latest figures from UCAS have shown a 3% year-on-year increase in students, showing that initial fears were overestimated.
Just 6% of the UK’s total number of students come from Europe. It is thought that favourable exchange rates will boost the number of international students in the UK, keeping demand high.
Click here to access your 2017 Student Accommodation Investment Guide…
It is thought that rents will continue to soar in the residential and student markets, as less people opt to buy houses in a time of economic uncertainty.
JLL expect that rents could increase by 18% over the next 5 years thanks to demand, with many student landlords benefitting from continued demand in this property sector.
The UK’s student property market is now worth £43 billion in terms of stock owned by universities and by private landlords and investors.
Nationwide, the sector welcomed £5 billion worth of investment in 2015 and although sentiment has slowed slightly in 2016, experts believe that the sector will receive around £4 billion of investment by the end of the year.
“There are more investors in the sector now than there ever have been,” said James Pullan, Knight Franks’ head of student property. “It is one of the few sectors in the property world that has delivered consistent rental growth every year since the economic downturn.”
Alternative property assets
Alternative property assets including care homes, hotels and serviced apartments are starting to pick up momentum.
In the first few months after Brexit, Knight Frank reported a rise in the amount of enquires from investors looking for opportunities outside of funds (especially commercial property funds).
According to the commercial property experts at Lambert Smith Hampton, alternative investments accounted for 16% of total UK property investments in July – up from 13% recorded in the previous year.
Investors have been attracted to long leases and reduced void periods that some sectors offer.
“People have said, post-Brexit, that they don’t want to take the risk profile that they did beforehand,” Shaun Roy, head of specialist investment at property broker Knight Frank, commented in July.
“That has now led them to buy specialist property because it tends to be less risky, more defensive. Over the last six to eight weeks, we’ve never been busier.”
The outcome of the Experience Invest review
The Experience Invest review has looked at the ups and downs of the UK’s property market throughout 2016.
It has been a turbulent year however, property has remained a sturdy choice for investors.
The UK has a unique property market; there is a crippling undersupply of property across a variety of housing sectors which will no doubt play a part in securing investor’s returns for many years to come.
Brexit presents a unique opportunity for overseas buyers who wish to capitalise of the weak value of the pound. Overseas investors will play an important role in securing the future of the UK’s commercial property market.
With interest rates at a record low, savers will not be rewarded for leaving their money idle. Investing in property for an income could be the best way for savers to get their money to work harder for them.
As investors look to diversify their property portfolio, alternative investments and student property will play a key role in 2017.
We hope you enjoyed the Experience Invest review of UK property in 2016. Tell us what you think using the box below.