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Why choose UK property investment?

Why invest UK property
Mar 25, 2015

The total number of foreign investors in the UK property market has now exceeded the 2 million mark and is still rising. This article analyses the various underlying elements of UK property that together make it a popular investment option.

 

Highlights

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Introduction

The UK: secure & high yielding property investment environment

There are many reasons why investing in UK property is such an attractive proposition:

  • The system of property law is comprehensive and well established
  • The UK property market is stable
  • The UK has one of the steadiest economies in the world
  • The political system is sound
  • The political and economic systems are in the main corruption free

The fact that the UK is ranked as the world’s second highest financial centre (top is currently the US) gives peace of mind to many foreign investors.

 

UK property market statistics

South West: top UK tourist region

The UK is one of the most densely populated countries in the world. According to the Office for National Statistics, there are 64.1 million people resident here in the UK and this figure grows by an additional 400,000 each year. By comparison, with a housing stock of 25 million, the UK has the 4th largest property market in the world.

New homes registration in 2014 totalled 145,147 – the highest figure since 2007. This is, however, far below the number of houses needed and, at present rates, the population expansion easily outstrips the availability of new property.

This critical undersupply makes the UK property market a very attractive proposition for investors. Although spikes appear from time to time, on average property prices double every decade.

Demand for rental properties is currently sitting at record levels. This is because tenants are staying in their properties for longer periods of time. When added to demand exceeding new build expectations, rentals and yields will continue to rise in the foreseeable future.

 

Growing popularity of student property

Highest yielding property investment - UK & US (Financial Times)

The commercial property sector continues to perform well. The average yield of 6.3% offers a far better return than the UK’s consistently low interest rates on savings. However, the relatively new Purpose Built Student Accommodation (PBSA) sector offers even better yields.

First established just over 20 years ago, having an investment in the PBSA sector is now widely accepted as owning a world-class asset. With certain PBSA investment opportunities guaranteeing a net 10% yield per annum for 10 years, this sector is gaining much interest.

The market for student accommodation has expanded and is forecast to continue its expansion in the foreseeable future. The expansion in foreign students is of particular interest, as they are a core candidacy for PBSA tenancy.

  • Foreign students contribute over £7 billion per annum to the UK economy.
  • The UK attracts 12.6% of the world’s internationally mobile students (only the US attracts more).
  • The growth forecast for international students studying in the UK is 3.7% per annum until at least 2020.

With the current and future forecast demand for PBSA significantly exceeding current and planned supply, new investment opportunities will be keenly sought after.

Location-wise, the London property market is generally accepted as being significantly overpriced. It is also saturated, with investors competing for assets priced so high that they make healthy capital growth uncertain.

PBSA developments are always located close to university campuses wherever they happen to be. It’s one of their key attractions to students. Away from London, prices are not as artificially inflated. Capital growth is assured through on-going demand.

High yields are also more reliably assured, based on the top build quality of PBSA developments, and opportunities to invest below market price by purchasing off-plan.

Cities and towns, like Leicester and Loughborough, are good examples of excellent locations for PBSA developments.

Serviced Apartments is another property sector that promises excellent capital growth and attractive yields. It also has the advantage of relatively low entry levels through fractional room ownership – starting at around £18,000.

Opportunities in England, Scotland and Wales, with their enormous tourist potential, are highly sought-after.

Wales is targeting the people of China in a bid to increase the numbers of Chinese tourists. It has launched a competition for inviting Chinese people to come up with Chinese names for popular spots. The famous world’s longest station name “Llanfairpwllgwyngyllgogerychwyrndrobwllllantysiliogogogoch” could be renamed “Healthy Lung Village” – a suggestion made by Chinese tourists, who say that you need a lot of lung power to say it.

Scotland is in the throes of launching a new tourist initiative this year through its “2015 – Scotland’s Year of Food and Drink” campaign. Also, Scottish Tourism Minister Fergus Ewing has just announced the “Awakening of the Giant” campaign – an initiative aimed at boosting the revenue from marine tourism in Scotland by 25% from £350 million to £450 million by the year 2020.

 

Attractiveness to overseas investors

London: the top global financial hub

Foreign investment swells the UK property market, making up over 80% of all investment in some years. The attractions are those outlined at the beginning of this article, namely political stability; a steady, growing economy, and a stable property market, underpinned by a comprehensive system of law.

Even when the world economy was in the doldrums, foreign investment in the UK property market stood firm. It remained consistently high at £10 billion.

This is due in part to the appeal of bricks and mortar. It offers a sense of security and tangibility. As a long-term investment and a hedge against inflation, there is little to beat it.

The tangibility of bricks and mortar works in other ways too. It provides the investor with an opportunity to increase a property’s value through hands-on renovation work.

There is also the opportunity to manipulate rental potential by altering the division of space to create Homes of Multiple Occupancy (HMOs). This suits investors who are prepared to invest in their time too. However, many are now thinking twice about HMO investment in light of the tendency for Local Authorities to impose additional licensing. This is why many foreign investors prefer to invest in PBSAs. There is no hassle with managing the investment and no concern about licensing.

 

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