On March 29th 2017, the British Government invoked Article 50 – the mechanism which starts the process of withdrawal from the European Union – putting the UK on course to leave the EU on 29th March 2019. Despite the ongoing negotiations and the fact that the UK hasn’t officially left the EU yet, the decision has already seen a big impact on the UK economy.
Opportunities for Overseas Investors
Following the Brexit result, house prices in areas like London have undeniably been affected by the UK’s decision to leave the EU, however the drop in the value of the pound has provided a great opportunity for anyone keeping a close eye on the UK property market from overseas.
The fall of the pound against the dollar has resulted in up to 40% discount for US investors wanting to take advantage of the UK property market but it’s not just American buyers who are benefiting, South African and Russian buyers are seeing discounts of up to 20% and even EU nationals are seeing discounts of up to 16% less than before the referendum result.
It is Chinese and Middle Eastern investors however, that seem to be taking advantage of the weak pound more than most. Research from international property firm JLL highlighted that foreign investors accounted for 51% of sales in the UK property market last year, with activity from investors in the Asia Pacific region increasing to 28% from 17% the year before.
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With a slowdown in rental yields in London, many investors are now beginning to look at other areas throughout the UK when searching for their next investment opportunity. Government plans to invest in transport links and infrastructure as part of their Northern Powerhouse initiative has seen Manchester become one of the most desirable places to invest in the UK outside of London. With significantly lower house prices in comparison to London and with rising rental yields, the demand for property in Manchester is going to be outstripping supply over the coming years.
Exit Opportunities for UK Landlords
UK buy-to-let landlords have seen their properties affected by the result of the EU referendum, especially when it comes to legislation. Tax relief reductions, stamp duty hikes, the right to rent policy and new buy-to-let mortgage lending rules have put landlords under increasing pressure, however the increase in demand from overseas investors has created new exit opportunities for landlords who are looking to restructure their portfolios to reduce their tax liabilities or if they are thinking of turning their thoughts towards retirement by selling their properties.
New Build Homes
The referendum result had a big impact on building firms, with the potential to slow down the number of new homes being build in the UK following a drop in share prices by around 40%. This seems to have subsided, as share prices started to rise again quite quickly following the initial EU referendum result and have been steadily increasing throughout the summer. The government plan to introduce new financial measures to help boost the construction industry, with the Chancellor of the Exchequer set to announce his plans in the Autumn Statement, taking place on 23rd November 2017.
Other Niche Markets
With the uncertainty around buy-to-let investments and what the future will hold for residential landlords, investors are turning their attention to other niche markets such as commercial property, student accommodation and care home investments.
With an aging population in the UK, the care home investment market has seen considerable growth over the last few years, with a large number of new luxury care home developments being build throughout the UK to meet investor demand, which far exceeds supply. Likewise with the student accommodation market; the number of overseas students choosing to study at UK universities is increasing year on year, which continues to drive the demand for luxury student accommodation in all the UKs major university towns.
Where commercial property is concerned, the London office market hit a slump immediately following the referendum result, with a number of high profile deals falling thorough and investment volumes plummeting, however 12 months on, activity has reached record highs, with £4bn being pumped into London commercial property in the first 6 months of 2017 from Chinese and Hong Kong investors, which has wetted the appetite amongst commercial landlords for investment in the office leasing market.