I’ve seen a sharp rise this year in the number of foreign investors looking to establish a presence or even expand their existing property portfolios in the UK.
People are divided on whether this is good or bad for the local market, but I’m very much of the opinion that it’s a positive sign for property investors based here in the UK.
It’s estimated that around £150 billion worth of property in England and Wales has been snapped up over the last 15 years by overseas investors, 73 per cent of which are residential property deals according to the Office of National Statistics.
Back in 2014, the majority of enquiries we received as a business were from property investors in the UK or London-based investors looking for training, mentoring or help purchasing property in the North West where I’m based. Fast-forward to the present day and those enquiries are still coming in strong, but we’re also getting more people from overseas in places such as Hong Kong, Singapore, South Africa, New Zealand, Dubai, India, UAE, Switzerland and Israel.
So what’s the appeal of the UK?
As a foreign investor, raising finance for a UK property purchase can be difficult unless you have a credit history or a strong purchase portfolio record in this country already. Most of the enquiries we receive don’t have either – they just like the idea of buying in the UK and there are a few reasons for this.
Firstly, now that the general election is out of the way, some stability has been restored to Britain’s economy and the perception is that we are now on a sustainable path of growth. There’s confidence in the Conservative government’s plans for the housing market and that’s given the green light to many property investors.
Another reason is the relatively straightforward buying process in the UK, which is well established, carefully structured, very transparent and easy for overseas investors to understand. We also benefit from having a solid rental and homeowner market and when there’s less perceived risk, it creates a very appealing market.
Economic volatility in overseas markets also makes the UK a beacon for foreign investment. Low oil prices in UAE and other Middle East countries are forcing investors to look elsewhere and diversify their portfolios for better gains. In India, rental yields are around 3% for prime property in key locations, which is a low return compared to the North West (around 8%), whilst in Hong Kong, home ownership is incredibly expensive and it’s therefore difficult to build a substantial portfolio.
What types of overseas investors are there?
Buying property in the UK is being seen as a low-risk opportunity with high returns and we tend to see two types of investors looking to grab a share of the market:
1. The safe investor: The first type of investor favours homes in well sought-after areas and wants working tenants that fit a typically good tenant profile. The home they’ll buy needs no refurbishments, it’s ready to go at a moment's notice and they’re happy to sacrifice higher rental yields, looking for around 6% if the property can tick all these boxes.
2. The high return investor: This investor likes the idea of properties requiring low maintenance and management. They often pay in cash and that means they’ll want a better return on their investment and will therefore look for properties such as HMOs, or those on long lease agreements to secure higher yields.
Why’s this good news for UK investors?
We’re seeing some of the world’s most intelligent and wealthy investors expanding their UK property portfolios because in their eyes, we have a booming economy and a growing housing market that’s heading in the right direction. This breeds confidence and when big investors are in a confident mood, it creates a positive atmosphere and stimulates added buyer interest, which continues the growth cycle.
We also find that typically, overseas investors aren’t looking for the same types of properties as local investors. Relatively few foreign property investors have an established network of suppliers here in the UK and don’t want the hassle of refurbishment or maintenance, whereas local buy-to-let investors often want to add value to a property by buying, refurbishing and then renting it out.
Directly, there's not as much competition as people think between local and foreign investors in my experience due to the different criteria, however, indirectly this trend of increased buyer demand for ready to go properties is putting pressure on these properties and therefore the ceiling prices for the local markets.
Now this increased demand isn't always a bad thing for local investors, it does however mean it's more important than ever to buy right and get value for money on your property investments.
*This article was written by Robert Jones, a Manchester-based property investor and director of Property Investments UK.