Don’t blame foreigners for on-fire property prices
One of the themes over the last few years is that the surge in UK property prices has been caused by overseas investors. Even Sadiq Khan, Mayor of London, ordered an inquiry into the part that overseas investors play in the London property market.
Here we look at the truth behind surging UK investment property prices. Is it the foreign investment that’s been pushing UK investment property prices? Or are there other more sustainable factors at play?
Is the UK housing market broken?
According to the English Housing Survey, the average rent now costs the average tenant almost half their take-home wage. Many tenants rely on housing benefit to boost their income and afford the rent. The blame for rising rents has been placed at the foot of overseas investors.
The private rented sector (PRS) is growing strongly. By 2025, we could see around 7.4 million households renting property in the PRS. And it’s not only millennials who are renting. Many investors are now targeting the silver renter for investment property profits.
UK property prices have been rising strongly since the Global Financial Crisis. Now, it appears that buying is moving out of reach of many in the UK’s major cities. And overseas investors are being blamed for the rising rents.
Why are UK property prices still rising?
Blaming overseas investors for rising prices and rent is too simplistic. For years, UK housebuilders have failed to meet demand.
Currently, the UK is building around 200,000 new homes every year. It is way below the demand of around 270,000 to 300,000 per year.
There have also been other factors which have contributed to the strength of property UK. These include:
- The Right to Buy push promoted by the Thatcher government in the 1980s and subsequent governments
- The introduction of institutional investors in the rental market
- Budget cuts as austerity policies pinched
Hundreds of thousands of council houses were lost from the social housing lists as a consequence of these measures. Where local authorities vacated the rented sector, investors – both UK and overseas – have stepped in. Property investors are now an integral part of the UK property market. Without these investors, fewer rental properties would be available.
Rising UK investment property prices are a domestic issue
As you can see, the strength of the UK property market can’t solely be levelled at the effect of overseas investors. It’s a domestic issue. Removing so much local authority social housing from the UK housing stock started the ball rolling. But there are more important factors in play. The population in the UK has exploded. Homes are needed to house the extra people. And developers have failed to build enough properties.
It’s this supply/demand equation which is the big determinant for UK property investment potential. And it’s likely to remain positive for many years to come. Although property price growth has slowed in the last couple of months, investment experts got it wrong again. UK property investment hasn’t hit the skids as it was predicted to by so many after the Brexit vote.
What does this mean for overseas property investors?
For expats and overseas investors, the fall in the pound since the Brexit vote has made UK property more affordable. In March 2016, a £250,000 property was priced at more than €350,000. By January 2017, if the price had remained at £250,000, the euro equivalent was €290,000. That’s a hell of a discount, almost overnight.
It’s not this price differential that makes UK property such a great investment opportunity. It’s the UK domestic market. I’m not saying that prices won’t slow further, or even fall (though I believe that the market will stay positive during 2017). But it’s going to take a real storm in the property market to produce the conditions for a collapse in prices. Conditions that will lead to a collapse in demand for homes and a huge surplus in supply do not appear to be on the horizon.
Is UK property expensive?
Contrary to popular belief, London is not the world’s most expensive city for property investment. In fact, according to the 13th Annual Demographia International Housing Affordability Survey, 2017, London doesn’t even rank in the top 20 most expensive places to buy property. This report measures the median property price as a multiple of the median household income. A reasonable way to measure affordability, I think.
In London, the median property price of £440,000 is 8.5 times the median household income of £51,800. Hong Kong investment property changes hands at a multiple of 18.1. The highest-priced UK location on this basis is in Bournemouth, where the multiple is 8.9 (a median property price of £265,000 and a median household income of £29,900).
If the experience of other world cities is anything to go by, UK property prices in its major cities could have some serious upside yet.
How can you profit from investment in property UK?
We’ve helped hundreds of expats and overseas investors achieve their lifestyle goals through investment in UK property. Contact one of our team today on +44 (0)207 923 6100, and you’ll have taken the first step to doing the same. We’ll help you with your property search, and explain all the costs that can be deducted before calculating your tax-free income from UK property investment (yes, I did say tax-free!). Just because you live in Spain, or Greece, Singapore, or Australia, there is no reason why you shouldn’t benefit from UK property investment, and the great property fundamentals that underpin it.
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