Welcoming back international investors to the UK property market
2021-07-22
There
is no denying that investors have faced a rough ride over the past 18 months,
with the seismic effects of the pandemic resulting in global recessions and
wild fluctuations across almost every financial market. Given this market
volatility, it is no surprise that cautious strategies have prevailed – in the UK, the conservative approach has been exacerbated
by further uncertainty in the build-up to and fallout from Brexit.
Tellingly,
the property market has weathered the storm stoically, emerging relatively
unscathed from the pandemic and further highlighting its resilience as an
investment asset. Indeed, FJP Investment’s recent
report on the impact of the COVID-19 pandemic on investment behaviour found
that 39% of UK-based investors are currently gravitating towards more
traditional asset classes, such as property, no doubt underscored by the
long-term performance of bricks and mortar as an asset.
The
buoyancy of the market is further evidenced by the significant surge in house
prices over the past year, as shown by all the major house price indices. For
instance, according to Halifax, the average house price in the UK reached a
record £261,743 in May; a rise of 9.5% in 12 months.
Crucially,
as we begin to emerge from the pandemic and the successful vaccination drive
allows for the safe return of travel, the UK now looks set to welcome back international
investors. This could prove a critical event in sustaining the long-term growth
of the property market.
Signs
of a turning point?
Knight
Frank eloquently described 2020 as “the year passports
lost their power”. And there is no question that the
hiatus of overseas investment amid the ever-changing travel restrictions were
felt across UK real estate, a market that is intrinsically global. Yet, the UK
continues to exert its pull on international investors, attracted by the
country’s safe-haven status and the property market’s capital growth prospects.
Indeed, Knight Frank’s 2021 Wealth Report predicts the UK to be a key recipient of real estate investment over the course of the year. Savills’ predictions for 2022 mirror this trend, with 47% of all investment to come expected to originate from international investors (of which just under half from neighbouring countries).
Further,
EY’s 2021 UK Attractiveness Survey reveals the UK is
perceived to be Europe’s most attractive destination
for investment, with 41% of international investors planning to invest in the
UK in the next 12 months. Respondents also perceived the UK to have the best
COVID-19 recovery plan in Europe, with the rapid roll-out of the vaccine
playing a key role in investors’ positive sentiment.
As the
inoculation drive pushes ahead and the lifting of travel restrictions enable
the release of pent-up demand among overseas investors, the market looks poised
to recover its momentum.
Why
overseas investors have never mattered more
While
the return of international investors signals a new dawn in the UK economy’s economic recovery, it will also help fuel activity in the
property market. Specifically, it offers the potential to help address the UK’s chronic housing shortage.
It is estimated that the Government needs to produce 340,000 new homes each year for the next decade to keep up with demand for property, accounting for new household formation and a backlog of the existing need for suitable housing. Despite this, and although housing has continued to emerge as an area of heated debate among political parties, successive governments have fallen short of the targets they set. In 2019/20, for example, the total housing stock in England increased by around 244,000 homes.
More
often than not, reports of international investment flows into UK property
carry negative connotations linked to the housing shortage. However,
international investors can play an important role in supporting the
construction and development sectors, by buying new residential units off-plan
and funding development schemes, particularly at a time when the knock-on
effects of the pandemic have contributed to the slowdown of construction.
For
example, the finance raised from off-plan sales to overseas buyers, which are
especially important for tower blocks and other high-density schemes, can
contribute to the increasing supply of affordable housing. Overseas investment
can also play a vital role in accelerating the completion of large-scale
developments, which without international capital, may now have otherwise got
off the ground.
It
becomes essential, then, to harness this investment potential and direct it
into the creation of homes. Now more than ever, as the world heals, and the UK
opens up for business once again, it is time we acknowledge international
investors’ place in the real estate ecosystem.
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