United Kingdom and London in particular has long remained popular destinations for overseas investors looking to invest in global real estate. In this article, we look at some of the key reasons why.
Historically, as a developed market, the UK has attracted significant investments from overseas buyers. The key reasons include a significant mismatch between housing demand and supply, which has in turn driven strong capital and yield growth, as well as limited restriction on the inflow of capital from overseas buyers.
- Mismatch between demand and supply: According to the Office of National Statistics (ONS), there is expected to be a shortfall of over 100,000 homes each year for the next decade, creating an imbalance in supply vs demand. Moreover, the UK population is steadily growing, compounding the housing needs. At the same time, lifestyle choices and economic (affordability) reasons have also spurred a growing ‘generation rent’, with more people choosing to rent longer (20% of population).
- Strong Capital Appreciation: Despite the vicissitudes of the property market, the UK property market has not disappointed investors who are invested for the long-term. As reflected in the UK House Price index below, prices have steadily increased in the past decade, on average doubling every 7 to 10 years.
- No restriction on foreign ownership: Unlike many other countries, the UK has little to no restrictions for foreign ownership and this has allowed overseas buyers gain access to almost all types of property investment deals. This has contributed to significant capital inflows from overseas buyers. In 2019, the UK Government announced an additional 2% stamp duty for foreign buyers. While this is a dampener, we do not see this as a significant impediment for overseas buyers in the longer term.
Beyond the above factors, as we move into 2021, there are some additional reasons why the coming year or two would serve as an opportune moment for overseas buyers is looking to invest in London and UK real estate.
- Favourable interest rates: The current Bank of England rates are at 0.1%, and are expected to remain at this level for the foreseeable future. This has provided opportunities for investors to pick up attractive financing packages to fund their real estate investments.
- Weaker British Pound: The British pound dropped over 10% since the 2016 Brexit vote and has not recovered since despite the Brexit deal that was recently announced. This has strengthened the purchasing power for overseas buyers, making investment into UK properties more attractive vis-à-vis other developed markets like the United States and Australia.
- Tax Efficient Structures: The tax regime is relatively straight-forward and transparent, and with a good tax advisor, investors can make their real estate investments work for them. Given recent tax changes, property investors are increasingly investing through SPVs or limited companies, which offer certain advantages. FPI also has strong partnerships with PropTech companies that simplify the set-up process and facilitate deal structuring (more applicable for multiple investors).
- Covid-19 Impact: The fallout from the global pandemic, with a looming recession and high-level of unemployment, will inevitably feed into the property market. This could result in a drop in house prices as well as more distressed sales. This presents opportunities for investors who are able to move quickly and have funds in place to snap up bargain deals that come up.
We believe the coming years will present a good opportunity for overseas investors to invest in UK property. At Focus Property Investments, we specialise in working with overseas investors to make investing in UK property an easy and hassle-free process. For more information, please get in touch with us to arrange a free, no commitment strategy and investment planning session.