Following the United Kingdom’s vote to leave the European Union on June 24 2016, investment in the London property market has seen a marked change.
Before the Brexit vote, average prices within the London market were growing at approximately 11.6% per year. In 2017, the bull run came to an abrupt end, with a more modest 2.5% increase in property prices across the capital.
Weak demand for high-end properties in London can clearly be attributed to the fall in the GBP (an almost 12.5% fall for the pound against the euro since 23rd June 2016), as well as the uncertainty that has resulted from the vote.
Given this convergence of uncertainty and a weak currency in the UK, has the appeal of European property improved?
Increasing numbers of investors are now looking overseas for profitable and stable property investment opportunities on the continent. The main beneficiaries of this change in focus will undoubtedly be cities and areas which are most likely to benefit from the Brexit vote; Frankfurt and Zurich for example.
Frankfurt in central Germany looks set to be one of the major beneficiaries of the UK’s ‘Leave’ vote. An already prominent financial centre, with a long history of hosting major financiers, from the Rothschild dynasty to Deutsche Bank, the city is well-set to capitalise on the imminent exodus of financial companies and experts from London.
Goldman Sachs has already announced a major expansion of its Frankfurt offices, purchasing an additional 1000m2 of office space in the Marienturm, allowing for the possibility of 800 additional staff being relocated.
The arrival of such a large number of well-paid prospective tenants has already had a noticeable effect on residential prices in Frankfurt: in the five quarters before the Brexit vote, purchase prices for residential property rose by €250 per m2, whilst in the five quarters following the Brexit vote, prices rose by almost €600 per m2.
Investors are seeing the opportunity that Frankfurt presents, and are already adapting to the increased demand caused by immigrants from London – rental prices have risen by nearly 50% on average over the past seven years, with a greater effect forecasted once the Brexit process has been completed.
Frankfurt could be a viable option for UK investors but they will have to act quickly, both to pre-empt an expected surge in prices, but also to guarantee access to the Frankfurt market.
Zurich in Switzerland also represents an appealing alternative for investors, particularly those looking for long-term growth. Whilst not within the European Union, Zurich does benefit from both its central European location and its membership of the Schengen agreement, allowing easy access for investors looking to purchase property in Switzerland.
Zurich has traditionally been a major hub for banking and finance, due to the stability of the Swiss Franc, the high-standard of living and English-speaking culture. The Brexit vote looks likely to increase the movement of financial services companies to the city, as businesses aim to secure access to the European market.
Similar to Frankfurt, this movement will result in a significant increase in demand for properties within the city, something that property investors could capitalise on.
UK investors should consider that the property market in Switzerland is regulated for foreign investors. The Lex Koller legislation, introduced in 1983, limits the acquisition of non-commercial property by foreign investors.
This controlled access means that it can be difficult for foreign investors to create a foothold in the Swiss market. However, a small number of developments, primarily in the Alps, are exempt from the Lex Koller legislation, allowing investors access to the lucrative holiday home market.
One such development is Andermatt Swiss Alps, which aims to revitalise the resort through the creation of 500 luxury apartments, six 4* and 5* hotels, along with 28 custom built chalets – all of which UK investors can access without hindrance, due to the aforementioned Lex Koller exemption.
Advice for UK property investors
For UK-based investors seeking a safe and profitable investment following the Brexit vote, three major factors should always be considered:
• Which is the right location? Will capital values increase in the future, and is the demand for rentals likely to increase?
• What are the legal and tax considerations that need to be accounted for when purchasing property abroad? A local expert can often be of help during the purchasing process.
• Are there any options for mortgages or other forms of borrowing when investing in property? This could make the investment cheaper over the short-term, making property a more attractive investment.
Whilst the uncertainty caused by the ‘Leave’ vote will eventually resolve itself once the UK’s position on the final Brexit settlement becomes clearer, there is no reason why investors cannot find profitable opportunities in the meantime.
Both Frankfurt and Zurich represent such an opportunity for investors looking to capitalise on the prospective movement of wealthy tenants to the city, whilst Andermatt continues to represent a unique offering to those looking to invest in luxury property in the Alps.
*Russell Collins is Director of Sales and Real Estate at Andermatt Swiss Alps