Since June 2016 the UK property market has been in a state of flux with many property investors adopting a ‘wait and see approach’. While the uncertainty is down to Brexit there has also been a reluctance to invest in residential property due to the introduction of a 3% stamp duty on second homes and a reduction of tax relief lowering buy-to-let profits making property investment in the UK look less attractive.
However this isn’t the case for everyone. Those who aren’t fearful have been capitalising on exchange rate trends following a significant decline in UK Sterling over the last two years which has benefitted those buying in dollar-linked currencies where the value of the pound is around a tenth below its pre-referendum exchange rate.
Particularly amongst Middle Eastern investors interest in UK property is at a high. This makes sense as Middle Eastern investors who are effectively US dollar buyers due to fixed exchange rates have a currency advantage while the pound is weak. According to property consultant Cluttons, straight after the referendum Middle Eastern investors made up 20% of all property sales to international investors in London.
Pound Dollar Exchange Rate
What’s particularly interesting though is that many international investors are using the weak pound advantage not to invest in London property but in other UK cities like Manchester and Birmingham. London property, and particularly prime property prices have stagnated and dipped over the last few years whereas the average price in regional cities rose between 6-8% in 2017. With London prices so high it is these regional cities that investors think are most likely to see growth in over the coming years. Research I came across by Liquid Expat Mortgages found that in 2017 60% of foreign nationals buying property in the UK chose to buy in Manchester and 25% chose Birmingham. These cities will become even more attractive once the new HS2 rail links to London are completed given that phase 1 is direct to Birmingham and phase 2 links on to Manchester.
There are investors however who are still looking to buy in London. A good example I have seen is FirethornTrust which was formed this year by two US family offices to invest in London real estate assets with a ‘focus on value-add investment and development opportunities’. On their website they say they have ‘no fixed investment periods, no fixed sector focus and no strict return parameters’, conditions than constrain many other property investors. Launching in September with $263million they have already bought Quay House in Canary Wharf for £26million.
What’s more, even after the Brexit deadline of March next year a Knight Frank survey of executives managing more than £500 billion of real estate found than more than 20% would still consider the UK as their top pick for 2019.
So in my opinion, foreign investors unsure about investing in UK property should consider the two possible Brexit outcomes. First if the deal Theresa May recently announced stands then the pound should bounce back which would benefit those investors who buy during this uncertain period as they will take advantage of the weak pound while they still can. Second, despite any outcome and even if resignations and Brexit turmoil persists beyond March, there is still a shortage of housing supply over demand in the UK so prices must eventually rise, you just might have to wait a bit longer to sell at a profit. Despite the uncertainty, I think there is still a strong argument for investing in UK property now and Fiducia Partners specialises in sourcing exceptional private and off-market investment opportunities so please do get in touch with me if you’re considering making an investment.
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