Jerald Solis, Business Development and Acquisitions Director, Experience Invest
As we speed towards the 31 October Brexit deadline, it’s easy to assume the somewhat chaotic scenes in Westminster are widely reflective of the general state of the economy. And while it’s true the continued political deadlock has stalled progress in some sectors, others have remained resilient in the face of uncertainty.
If we are to reflect on recent developments in the property market, for instance, it offers a promising indication of how we can expect the industry to fare post-Brexit. Indeed, it highlights exactly why UK real estate remains a lucrative asset class, particularly amongst international investors.
In the aftermath of the June 2016 EU referendum, the UK property market remained a leading destination for global investment. Figures show in the first half of 2017, the UK made up 14% of global commercial property investment transactions; this was second only to the US. Meanwhile in the multifamily residential sector, total investment volumes rose by more than 150% to reach $7.6 billion in 2018.
The question beckons, therefore:why has international confidence in UK real estate hold strong? And, more specifically, what opportunities does it offer investors seeking strong returns?
Why do international investors back the UK property market?
When exploring the continuing attractiveness of the UK property market even in the face of uncertainty, we cannot ignore the currency fluctuations that have accompanied the decision to leave the EU. Since June 2016, the value of the pound has steadily fallen, which has meant overseas investors have found themselves enjoying more buying power.
With a weaker sterling offering overseas buyers a favourable exchange rate, investors have grasped the opportunity to acquire property in the UK before prices rise; this is particularly true in the capital. According to data from Hamptons International, international buyers bought 57% of homes in prime central London in H2 2018, which is the highest level since the 58% recorded in H2 2012.
Looking beyond the capital
It’s clear interest in the UK property market remains steadfast; however, this does not mean investors’ strategies haven’t changed over the past few years. While London remains a global favourite, it’s no secret the market has struggled to find its footing since June 2016, with prices largely stagnating across the city. This has inspired many property investors to cast their nets wider and explore opportunities in growing markets beyond the capital.
Cities like Manchester, Liverpool, Leeds and Newcastle have all recently climbed the rankings to become lucrative property hotspots. At Experience Invest, we have witnessed this first-hand; indeed, Manchester and other cities in the Northern Powerhouse have attracted some of the highest levels of Foreign Direct Investment of any UK region outside of London, according to research from Ernst & Young. Major events in the Middle East and Far East – such as Cityscape Global in Dubai in September 2019, which Experience Invest will be attending – underline this point.
Bolstered by international, prices in northern regions of England have been growing at a faster rate than many parts of the country. In the 12 months to July 2018, house prices in Manchester rose by nearly 9%, attracting strong interest from foreign buyers. Enquiries by Chinese investors alone about buy-to-let options in the city soared by 255.6% in January 2018 compared with the same month just a year earlier.
Behind this trend lie large regeneration projects; investment is being directed to improve infrastructure and transport links, while new developments are springing up to cater to growing demand for property. Meanwhile, the lure of purchasing a property in these flourishing hubs – when compared to opportunities in the capital, for instance – are clear. Prices in these cities are typically below those seen in London, yet rental yields and capital appreciation forecasts tend to be markedly stronger.
Diversifying investment options
These cities are also home to large student populations. As such, there is year-round demand for rental accommodation, which has been met with the rise of Purpose-Built Student Accommodation (PBSA). Such developments are tailored to the changing demands of the modern student, and generally offer on-site amenities like gyms and cafés.
PBSA has not only become more common in university towns and cities; they have also become highly sought opportunities for property investors, both in the UK and overseas. In fact, in 2018 overseas investors dominated the market, making up 55% of transactions, according to Cushman & Wakefield.
Given the UK’s proven track record of delivering promising property opportunities, there is no doubt Britain will continue to be a main target for global property investors post-Brexit. Whether it is a weaker pound, the cultural vibrancy of cities across the country, or the rental demand created by major universities, there are many factors luring overseas buyers to UK real estate.
Investment volumes in the lead-up to the Brexit deadline have surprised many industry commentators who feared a backlash from the vote. This just goes to show that, in the long-term, UK property continues to have timeless appeal, and investors can look forwards to a more optimistic period of recovery as certainty is regained.
Jerald Solis is the Business Development and Acquisitions Director at Experience Invest, a company that provides property investors in the UK and overseas access to exclusive investments across a variety of asset classes. He will be representing Experience Invest at Cityscape Global in Dubai from 25 to 27 September, offering advice for international investors looking to new real estate investment opportunities in the UK.