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UK Property investment guide for overseas investors

Safe haven: Is it time to shift property intentions to the UK?

For many years, and in particular since the global financial crisis, the UK has been seen as something of a safe haven for property investors, attracting those with money not only domestically, but from a number of different countries across the world.

After 2008, promises of rich capital gains from rising property valuations gave way to a resilient property market that stood relatively strong in the tide of financial worries. While previously strong markets such as the US and Australia, and fast-rising areas such as the Middle East saw prices plummet - Dubai by as much as 65 per cent in places - the UK remained relatively strong. While prices fell, these value reductions were not as severe as elsewhere, which meant the UK retained some of its popularity.

With the financial crisis having passed for the UK, though, and the country now in a state of economic recovery since mid-2014, there are many reasons to be positive about the UK property market. The sector appears to be improving all the time, with both capital gains and potential returns expected to continue to grow in the months and years ahead.

Best of all, it's not just London that's looking up. Unlike in the past, the growth being seen across the UK at the moment is nationwide, with many of the previously unfancied cities and towns across England in particular keeping pace with the capital in terms of growth and potential for the future, which presents a range of advantages, including lower entry prices, varied property options and the potential for favourable returns.

With this in mind, is now the time for investors across the world to move their property intentions towards the UK for the long term?

The history of the UK as a property safe haven

The British property market being viewed as some sort of safe haven is nothing new. For years, foreign investors have been flocking to the UK from across Europe and the Far East in particular, with the Middle Eastern buyer also joining the party in the capital in later years.

The majority of this sentiment was seen in London after the financial crisis, when it managed to retain property values relatively well. While some of the worst hit nations such as Spain saw the value of homes dropping by as much as 30 per cent, London managed to keep the depreciation in single figures. This made it a great place for people with money to shift their property intentions towards in order to make sure they were not seeing large falls in the value of their investment.

In fact, so safe was London perceived to be, that even after the onset of the financial crisis had passed people were still coming to the capital to invest. Indeed, by 2013, 70 per cent of all new build homes in the capital were being snapped up by people from overseas.

Between 2009, when the market reached its lowest point, and 2013, when foreign investment peaked, property prices were rising sharply in the UK once again. While other nations were still struggling to bring property price falls under control, prime central London property values climbed by more than 56 per cent in just four years.

The fact that almost three-quarters of the £2.2 billion invested in central London property in 2013 was coming from overseas is indicative of just how prominent it was as a foreign investors' haven. Even into early 2014, the rise in overseas investment meant that just 15 per cent of all homes in London were bought by UK residents.

It's a trend that has continued ever since, with more investors coming in to take advantage of the strong performance of UK property across a range of different asset classes, but will it be something that we see in the future, and will UK property manage to continue in its position as a safe haven, even at a time when the world is slowly but surely recovering from the global financial crisis?

Will Europe get worse before it gets better?

While the UK may be the safe haven of Europe, there are also many who have perceived Europe as the place to buy property in the last couple of years. The continued struggles of the single currency have meant that those buying in pounds, dollars and a range of other currencies have been able to get more for their money in terms of bricks and mortar in eurozone nations. On top of this, we've also seen European prices fall to a level 45 per cent lower than before the financial crisis.

With the perception that this fall is only temporary, and that some sense of recovery will happen somewhere down the line, investors have looked to buy in eurozone nations over the past couple of years with long-term goals in mind.

But is this the right tactic, or are we going to see European property prices get worse before they get better?

JLL said that much like with the economy, the property market in the eurozone will be seeing more signs of mild recovery throughout the rest of this year, but while prices will be rising in certain rental hotspots such as Spain and France, it will still be a bumpy ride for the market as a whole, with uncertainty unlikely to attract investors to part with their hard-earned cash on the continent.

And while 2014 marked some semblance of recovery in the property market - eurozone property prices rose by 0.5 per cent - it was still far below the 11.7 per cent overall annual growth seen in the UK. The truth is that the European market is just too hard to predict. While we've seen the British property sector growing over the past few years pretty consistently, in the likes of Spain and France, it's a far more volatile market.

Often, a quarter of growth in these markets is followed by an immediate drop in prices in the next three months, and while it's perhaps not the case anymore that we are going to see things get worse before they get better, the up and down nature of the sector across the eurozone can make it a difficult place to invest.

Does the UK look stronger?

By way of contrast, predictions for the UK market are generally favourable, with most experts from big property organisations expecting to see growth for the rest of this decade.

Knight Frank, one of the biggest organisations in the UK, predicted that even though we are likely to experience a slowing in price rises in 2015 - prices are expected to finish this year 3.5 per cent higher than at the end of 2014 - steady rises across the next few years will put the market in a very strong place.

Knight Frank expects to see the price of property rise by 18.2 per cent between 2015 and 2019 as more and more confidence seeps into the market.

Similarly, Rightmove's forecast for the rest of this decade looks positive for the UK's property market. It said that between 2015 and 2019, it is predicting even better growth, with the UK's market likely to see prices increasing by between 20 and 30 per cent.

The rise of the regions

One of the most striking positives in the UK property sector over the course of the past few years has been the rise of the regions.

While, as we addressed earlier, London has always been seen as the hotspot for property investments, the last couple of years have seen the regions outside the capital start to gather momentum. So much so, in fact, that in many areas the property market now outpaces growth seen in London itself.

This has been true in the past 12 months in terms of both house prices and rental rates, with various English regions seeing stronger rises than in the capital. HomeLet's latest insight into the rental market, for example, showed that the rise in rental prices between April 2014 and the same month this year were at 7.5 per cent in London. Meanwhile, with London excluded, the UK as a whole saw rents increase by 7.6 per cent in the same period.

It's a massive step away from the past few years, when it wasn't uncommon to see the rate of growth in rental prices in London double that of the rest of the country, indicating a real shift in power in the market.

It's a similar story when it comes to house prices as well. LSL said that in the past 12 months, the rate of increase for property values in the UK as a whole had hit some 7.1 per cent. However, London's market paints a different story. In contrast to this time last year when growth was at over nine per cent, this year it has slowed to just 6.8 per cent at the start of March 2015.

And it's not just in the residential market where this has been coming true. The strength of the regions as a whole was recently talked up by JLL, with the property giant stating that over the course of the next few years, it expects to see office values around the country grow faster than in London as more business move to dedicated regions. It said that since 2012, Brighton, Solihull and Reading have been the real stars of the commercial market with an average growth in office stock value of more than 25 per cent. This is a reality it expects to see continuing in a number of smaller towns and cities in the Midlands and the north of England in particular over the coming years.

What does it mean for investors, though? On a simple level, it means more opportunity. No longer do they have to face the stiff competition for both residential and commercial stock in the capital as both foreign and domestic buyers battle it out for the most attractive properties, inflating prices in bidding wars.

In addition to this, there are also benefits such as cheaper entry points. Whether buying to let residential property or looking towards offices, for example, an investor can buy for far cheaper in the north or Midlands than they would be able to in London. And with the regions now accelerating faster than London, the potential for making a fantastic return on investment, and a steady but attractive income, is there.

How to spend in the UK

The strong current performance of the UK property market has also allowed the market to blossom into a richly varied entity. Whereas the practice from foreign investors in the past was to buy prime houses and off-plan residences to benefit from capital gains alone, the fact the market is now so strong across the board has meant that there are a great many options, each with their own benefits, for investors to choose from. We take a look at just a few of the most prominent asset classes currently performing well in the UK property sector.

Capital gains: With strong predictions in place for the next five years, taking the traditional route of buying and selling in the short term is an option for foreign investors in the next few years. With the top end of expectations flirting with 30 per cent rises in just four years, it could mean every £100,000 of investment being worth £130,000 in less than half a decade.

It's also worth remembering, however, that as of this year, foreign investors now need to pay capital gains tax on anything sold for property, much like British residents. This will amount to between 18 per cent and 28 per cent of profits, and is worth taking into consideration when assessing what investment option to undertake in the UK.

Student property: The jewel in the crown of UK property, student investment has been the fastest growing asset class in recent years. The evergreen nature of this property type - there will always be students, and they always need somewhere to live - and the growing appetite for higher quality accommodation from the rising pool of overseas students who are prepared to pay high rental prices has made this a strong option.

In the past two years, investment in this sector has hit more than £2 billion each year, having never done so before 2013, and with good reason. Yields can top eight per cent in some of the best performing cities such as Liverpool, Southampton and Sheffield, giving foreign investors a steady income over a number of years.

Buy-to-let: Buy-to-let is not a new concept for foreign investors, and it's an asset class that has been increasingly popular with overseas buyers in the last few years. UHY Hacker Young estimates that in the space of just five years, the number taking this route increased by almost 40 per cent. Strong market conditions and the emergence of a new generation of tenants has created this reality, and looking forward, we can be pretty certain that this will be a stable investment option for foreign buyers for years to come.

At the moment, rental prices in the UK average £916 per month, having climbed by around ten per cent across the UK as a whole. With predictions in place that rental prices would climb at twice the rate of house prices in 2015, this gives more scope for a far better long-term return for investors than taking the traditional route of buying and selling a home with a quick turnaround.

Many developers are also now taking advantage of the strong demand for rental properties by offering off-plan investment in units of purpose-built rental accommodation, which comes with a lower entry price and a guaranteed return over a number of years.

Commercial property: Commercial property roared back in 2014, and with the economy and business sentiment picking up, it seems that this is the asset of choice for many looking to invest in UK property.

Spurred on by returns of 20 per cent reported in late 2014, the early part of this year has seen a surge in investment in commercial assets. DTZ reported that the first quarter of 2015 saw investment hit a seasonal record high of £13.6 billion, showing just how strong sentiment is for commercial property at current.

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