Summary:
Will overseas investment into UK property continue at the same rate as recent years as we career towards the Brexit deadline? Our REalyst analyses the future of overseas investment into UK properties and weighs up the chances.
Overseas Investment in the UK Property Market
When discussing the future of the UK property market, it is nigh-on impossible not to mention Brexit. The word itself has became part of the cultural lexicon faster than LOL – though some may use LOL to describe how Brexit is currently being handled. (Not us, of course! We’re impartial.)
Anyway, we digress; it is not for us to comment on how the government navigates Brexit. Instead, we are looking at what impact Brexit and other trends in the market will have on the future of overseas investment in the UK property market.
Many foreign investors purchase property in the UK – especially new builds in larger cities. This investment goes some way to supporting current price levels for these new builds. But what if that overseas investment were to see a drop in pace, perhaps due to a fall in the pound’s exchange rates or problems in their local economies? Such support for the UK market would likely stagnate.
The Impact of Foreign Investment on the UK Property Market
Foreign investment has a direct impact on property prices in the UK. A recent study from King’s College London using Land Registry data found that house prices have gone up by more than 20 per cent in the past 15 years due to overseas investment into UK property.
Findings from this study revealed that the average property price in the UK in 2014 was £215,000 compared to 1999’s average of £70,000. The report showed that without foreign investment, average house price in 2014 would equate to £174,000 – that is £41,000 less than the actual total.
The majority of foreign investment is concentrated in London. However, these investors are starting to expand their horizons and look at other major UK cities such as Manchester, Liverpool, Cardiff and Edinburgh – areas that are also highlighted in January’s Market Moveras residential yield hotspots.
Overseas Investment in the UK: the Facts and Figures
Before we start looking at the future of overseas investment in the UK, let’s first focus on our present day situation from a foreign investment standpoint. In the aftermath of the EU referendum, some foreign investors shied away from the UK property market.
However, that shyness did not last for long. According to a report in The Times, investment in the UK property market from abroad – specifically in London property – saw a 13 per cent rise, which is 3 per cent higher than in the whole of 2017. Overseas investors seem undeterred by the uncertainty surrounding Brexit.
Surprisingly, prime central London saw the most significant increase, with buyers from the EU alone making up 15 per cent of property investment in areas such as Kensington and Chelsea and Westminster. While these areas have some of the lowest yields in the UK, they are still proving an attractive option for overseas investors.
The ‘Whys’ and the ‘Hows’ of Overseas Investment
Part of the reason for renewed interest could be down to a weaker pound, which makes the numbers seem even more appealing from an overseas perspective. For many foreign investors, putting their money into the UK property market is still seen as a safer investment than keeping it in their own country.
Despite countries like Germany and France seeing improvements in their respective property markets, the UK still has one of the strongest markets in Europe. As such, with a robust market comes long-term capital appreciation. With prime central London proving to be popular, it would seem that investors favour long-term gains over short-term rental benefits.
Of course, it is not only prime central London that has seen the benefit. Manchester has a booming property scene, thanks to a large population of students (many of which come from overseas) and a thriving economy, which has seen companies like the BBC set up shop in the Northern city.
Developers have caught on to the appeal of Manchester: there are currently around 15,000 new homes being built in the city. Outside of the capital, Manchester is the top city in the UK for foreign investment.
For now, at least, foreign investors still have plenty of faith in the UK housing market and are making their presence known all over the UK.
A Look at What the Future Holds
While Brexit does not appear to have deterred foreign investors just yet, a no-deal Brexit could tell a different story. With the amount of uncertainty it would bring, those investing from overseas could hold back (much like they did in aftermath of the referendum) on buying in the UK, instead waiting to see how the country recovers from the implications of a no-deal Brexit.
Such a scenario would have a knock-on effect for developers, who may think twice before buying land to construct new-build developments. On the other hand, any dramatic fall in the pound that could accompany a hard Brexit might see overseas investors take advantage of the situation, if they believe the UK has long-term economic upside.
Mark Carney, Governor of the Bank of England, suggested that a no-deal Brexit could see UK property prices drop by 35 per cent. Undoubtedly, these numbers would be appealing to overseas investors looking for a good deal and willing to hedge their bets against the pound.
Aside from Brexit, economic downturns in the home country of an investor could lead to fewer UK properties purchased from overseas. However, investment in the UK comes from such a diverse range of countries that there would need to be a financial crisis on a global scale for the UK market to be affected so heavily.
Without hedging our bets, it seems that overseas investment will continue at the same pace. This will mean that developers have plenty of opportunities to maximise their income as foreign investors look to snap up property in good ol’ Blighty. The only real drawback in the near future could be a no-deal Brexit, which might lead us all into the realms of the unknown.
All eyes will be on Westminster over the next couple of months.
