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Insight & Opinion

Why income investment in UK property is an attractive option for overseas buyers

Author: Gemma





Income investment is an attractive option for people looking for ways to bolster their earnings. For international investors, UK property could be one of the most appealing options, partly thanks to its proven track record for delivering returns.

Investing to receive a second income is an attractive option for many, and it’s not difficult to see why. If you have a lump sum available to acquire an asset that delivers reliable returns, you can set yourself up to receive a passive income for years to come. This could be particularly attractive if you’re currently considering ways to prepare financially for retirement.

When it comes to specific targets for income investment, UK property is an appealing prospect for many. International investors in particular could have a lot to gain from investing in UK real estate at the moment.

Here are some of the key characteristics of the market that illustrate why it’s such a strong draw for overseas buyers investing to gain a second income:

Proven credentials

The growth in value of UK property as an investment asset in recent times has been clear for all to see. Since 2010, the average property price has risen from £167,469 to £232,944, which underlines the scale of capital growth owners have experienced in that time.

House prices have remained on an upward trend despite the political and economic challenges the market has witnessed in recent years – most notably the uncertainty caused by Brexit.

As well as failing to stop the property market from increasing in value, all the questions around the UK’s exit from the European Union don’t appear to have put international clients off investing their money in the country.

A survey by real estate consultants Cluttons, focusing on the intentions of wealthy property investors in the Middle East, emphasised the ongoing appeal of the UK, despite Brexit. The country emerged as the second most popular property investment destination for this group, tied with the USA and second only to India.

Favourable exchange rates

One of the undeniable consequences of the 2016 EU referendum and the resulting political chaos in the UK was a steady decline in the value of the pound. While this is an unpopular trend among Britons planning holidays abroad, it’s good news for international investors considering a property purchase in the UK, who have seen the value of their currency rise against sterling.

As mentioned above, British property holds strong appeal for wealthy Middle Eastern investors. Those based in the UAE have seen the Emirati dirham (AED) soar in value in recent years, hitting a high of £0.23 in August 2019, up from £0.16 in July 2014.

To put this into perspective, a hypothetical UK property priced at £100,000 would have cost a UAE buyer approximately AED441,000 in August 2019, compared to AED630,000 in July 2014.

The pound has also suffered a drop in value against major international currencies including the US dollar and the euro, so it’s not only Middle Eastern investors who have something to gain from favourable exchange rates right now.

A diverse and dynamic market

The diversity of the UK market – in terms of the various regions and asset classes available – is a big advantage for investors because it provides the choice and flexibility people need to find an asset that is just right for their needs.

Regionally speaking, London and the south-east are traditionally seen as the engines of UK housing market growth, but in recent years the north-south power divide has been flipped on its head. Cities like Liverpool and Manchester have shown they can rival London in terms of what they can offer investors.

Research by JLL has emphasised how the housing market in the north-west has outperformed the rest of the UK since the EU referendum. The firm also predicted price growth of 3.1% per annum in the north-west up to 2023, compared to the wider UK average of 2.4%.

As far as specific segments of the market are concerned, the ongoing development of alternative asset classes in the UK offers unrivalled choice for international buyers. Sectors like student accommodation and hotel suites are particularly well-suited to income investment thanks to the typically high yields available.

Strong private rental demand

The difficulties many UK residents – particularly younger people – face in getting onto the property ladder has given rise to a phenomenon dubbed ‘generation rent‘. The availability of property in the private rented sector has become more important than ever as an increasing number of people struggle to buy their own home.

According to the Office for National Statistics, the number of households in the private rented sector increased from 2.8 million in 2007 to 4.5 million in 2017.

This strong demand for rental property is an encouraging trend for overseas buyers looking for income investment opportunities in the UK, because it suggests a high likelihood of strong, reliable rental returns.

Yields tend to be particularly healthy in areas where the demand for rental property is highest, such as London’s commuter belt.

Political clarity in 2020?

There’s no denying that the UK has gone through a period of political and economic uncertainty since the June 2016 EU referendum. The economy – and particularly the housing market – has proven itself to be fairly resilient during this time, but overseas investors will be particularly encouraged by the fact there is now light at the end of the Brexit tunnel.

The Conservatives’ resounding victory in the general election means the UK is now on course to leave the EU by January 31st 2020, and the government has said the post-Brexit transition period will only continue until December 31st 2020 at the latest.

Responding to the election result, the Confederation of British Industry said UK businesses and the economy have reason to look to the future with confidence, adding that “a new contract between enterprise and government can make the UK a global magnet for investment”.

The new sense of clarity and direction in the political sphere could go a long way to reassuring the corporate community and encouraging overseas investors to commit to the UK.

As far as the property sector is concerned, there is every reason for investors to feel confident the market will thrive in 2020 and beyond, providing excellent opportunities to secure assets capable of delivering a steady passive income stream.

Your 2020 guide to income investment in UK property

If you are considering an income investment in UK property in 2020, download Experience Invest’s latest guide which outlines five key trends investors should consider to maximise their ROI. Access guide…

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