UK property is traditionally viewed as a reliable investment, particularly by overseas investors who can make their money go even further at times when the foreign exchange market favours their home currency.
Trends in 2018 have suggested that this continues to be the case, with the British market drawing particularly strong interest from investors in regions such as the Middle East.
Foreign investment trends
Recent challenges such as Brexit and the resulting economic and political uncertainty don’t appear to have prevented international buyers from investing in UK property. Foreign money is still flowing into the British market at a rapid rate.
The Middle East is one of the most striking examples of a region that is investing more and more in the UK. In the third Private Capital Survey by Cluttons, published earlier this year, Britain emerged as the joint second most appealing global property investment destination for investors from the Gulf, behind only India and tied with the United States.
Jas Sanger, a Dubai resident with £14 million of UK real estate assets spread across buy-to-let homes and new-build developments, told the National: “If there was a time to buy UK property I would say it is now. The exchange rate is brilliant. We are basically getting more for our buck at the moment.”
Recent research by King’s College London revealed that foreign investment in the UK has been so substantial it has considerably inflated housing prices.
The figures suggested that average prices more than tripled from £70,000 to £215,000 between 1999 and 2014. Without additional overseas investment, it’s estimated that the typical house price in 2014 would have been significantly lower – around £174,000.
Why the UK is still so appealing
Far from deterring international investors from entering the UK, Brexit has triggered a trend that has boosted the appeal of British property in a number of overseas markets – the falling value of the pound.
Against the Hong Kong dollar, for example, the pound has dropped from a value of HK$11.38 at the end of May 2016 to HK$9.90 in December 2018. Similarly, against the US dollar, sterling has fallen from US$1.48 on the eve of the Brexit referendum, to US$1.25 at the end of 2018.
According to a recent article published on The Guardian, overseas investors have purchased up to three times as many £10 million plus luxury properties than before the Brexit vote.
The potential for international investors to get more value for their money has increased the appeal of what was already a highly attractive asset class. UK property has amply demonstrated its value for investors in recent years and decades, particularly in the sense of long-term capital growth.
Since the turn of the century, average house prices have almost tripled from £77,698 to £216,103, according to building society Nationwide.
In addition to capital growth, a key consideration for buy-to-let investors is the likelihood of strong and consistent rental returns. This is another area where the UK offers encouraging prospects, largely because of the ongoing imbalance between housing supply and demand, and the fact large portions of the population are renting because of difficulties in getting onto the property ladder.
The potential to combine capital growth and rental returns is particularly evident in sectors such as student accommodation, which has emerged as one of the UK’s most profitable asset classes in recent years.
In its latest Student Accommodation Index, real estate services firm CBRE revealed that the sector delivered returns of 12.3 per cent and capital value growth of 6.5 per cent in the year to September 2018.
What could 2019 bring?
There are many questions to be answered in the UK in 2019, particularly in terms of Brexit and how the country will fare – economically and politically – after it leaves the EU.
As far as British property is concerned, however, foreign investors can feel confident that the market will continue to deliver, with prices staying on an upward trend and rental demand showing no signs of abating.
According to Savills, UK house prices will increase by 14.8 per cent between 2019 and 2023. The firm said “the traditional north-south divide will turn on its head”, with the strongest growth taking place in the Midlands, the north of England and Scotland.
Rental growth is also set to stay strong, averaging 13.7 per cent over the next five years as mortgage finance availability and housing supply remain tight.
Lucian Cook, head of residential research at Savills, said: “Until the market sees a significant injection of build-to-rent stock, rental demand will outstrip supply and rents will rise.
“Investor buyers requiring borrowing are expected to focus on higher-yielding markets and this will put further upward pressure on rents in some of the most expensive rental locations.”
With more positive trends on the horizon, UK property will surely continue to attract foreign investment and deliver strong returns in 2019. The year could bring some major economic and political developments in Britain, but property will remain one of the safest investments on offer.
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UK Property Investment Guide for Overseas Investors
If you are an overseas investor looking to purchase a buy-to-let property in the UK, follow the link to access Experience Invest’s UK Property Investment Guide for Overseas Investors.