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?
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.
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.