UK property has long been seen as a portfolio mainstay – a safehaven that has a longstanding history of sustained capital growth and high rental yields.
It could be said it’s the ultimate mid-to-long term investment to hedge against the fluctuation and volatility of stocks and shares.
Yet, as our politicians like to remind us, we are in unprecedented times. Uncertainty is the only certainty. Post-truth, coronavirus, Brexit are all market-defining events both in the UK and further afield.
Is the UK property still a sanctified safehaven? Is it still easily accessible to overseas investors?
UK property investment performance
Unlike some asset classes, UK property has continued its sustained output throughout the turbulence of the economic climate.
In a year in which Wall Street saw meme-investing with GameStop and AMC Entertainment Holdings, and the IMF reported “Global flows of foreign direct investment have been severely hit by the COVID-19 pandemic”, falling third, British Real Estate’s performance has been largely unaffected.
Indeed, the onset of Covid triggered a stock market crash that was the 2nd most rapid in history – behind the 1987 Crash – and the market dropped 35% in just 23 trading days. Of course, in the short span of 23 days, nothing happened to UK property valuations, but how has it performed over the full course of 2021?
According to the latest property price report from Halifax, released in December 2021, the average cost of UK property has reached a new record high of £272,992.
Average prices are, of course, a murky barometer of actual investment performance, but the whole market has recorded YoY gains of 8.2%.
In fact, values have increased by £33,816 (or £1,691 a month) since the first coronavirus lockdown in March 2020.
And there’s no sign of this slowing down.
2022 is set to be the strongest year of property buying activity in 15 years. The main trade body for UK banks recently stated:
“Barring a complete reversal of the current picture, purchase transactions in 2021 will reach their highest level seen since the peak in 2006, just before the global financial crisis [of 2007–08].
“The combined boost to demand from stimulus measures and societal changes has more than offset any dampening effects from Covid-19 and wider adverse economic factors.”
And what about yields?
HomeLet’s Rental Index shows the average UK rental yield is currently around 3.38%. That’s certainly comparable against most non-equity assets, but without factoring in capital growth, it is literally only half the story.
Furthermore, there is massive variation between markets and regions and some cities do offer investors annual yields of over 6%.
It is this sustained level of overperformance that has made UK property – and especially property within the private rented sector PRS) such a strong asset for many decades.
It’s overperformance that is linked to a specific set of supply and demand dynamics.
The PRS is almost 5 million dwellings strong and has increased in size considerably over the past few years. It is somewhat uniquely cyclical as there is no doubt the inability of some young people to buy a property has swollen the PRS and housing affordability does remain a key factor in its growth.
This is all underpinned by a wider lack of real estate supply. Office for National Statistics figures show the UK’s population has increased by approximately 5 million since 2001, and by more than 10 million since 1964. This growth easily outpaced the supply of new homes, resulting in a structural undersupply of accommodation across the country.
If the first thing you need to answer when asking about UK property is ‘should I invest?’ then now you may have some idea why it is a favoured asset class the world over.
The next question maybe ‘can I invest in UK property’. The answer is probably ‘yes’. Global investment in British real estate has been staggering over the past few decades.
So if it likely you can invest in UK, property what are some of the things you need to know:
Visa requirements to invest in UK property
There are no visa requirements to invest in UK property or buy UK real estate.
The UK has welcomed overseas investors to it’s property market, but by law parties involved with investing or buying British real estate will be subject to a buyer’s identity check to prevent money laundering and fraud.
These are conducted by solicitors and banks in the main although some property agents may also carry out their own checks at certain stages of a transaction.
In general, in terms of documentation to buy a UK property, you’ll need:
- Proof of identity – simply your passport
- Proof of address – this is usually a bank statement, utility bill or driving licence
- Proof of funds
On a final note about Visas, it is a misconception that investing in UK residential property provides residency. It does not.
Most people will agree that the three fundamentals of property investment are location, location, location.
That’s difficult when you’re an overseas investor looking to purchase real estate assets in the UK.
There’s significant variation across the country – both in terms of capital growth and rental yields.
It’s not as simple as looking at average rents in a city, either. REntal rates range from an average of just under £400 a month in the North East of England to £1,755 in London, but if you equate that to yield, you’d probably be better off buying in the North East, due to the massive difference in capital outlay.
The UK average is between 3-4%, and if it’s just yields you’re focused on, you will want to be looking at regional cities.
Over the past year or so, investors from Saudi Arabia to Hong Kong have been acquiring lots of property in the UK’s regional cities – even building new houses in some cases.
For example: when family-owned Saudi conglomerate AIMS Holdings appraised the UK, it decided Manchester, Newcastle and Leeds offered greater chances of ROI.
“When we first wanted to invest in the UK we looked at London. Then we saw there were much more opportunities elsewhere. It was a real eye opener,” said Abdulaziz Albassam, chief executive of AIMS Investments, its wealth management arm.
If we wanted to be slightly less hyperbolic, location isn’t the only thing that leads to a successful property investment in the UK. In fact, research suggests that location that is close to work or university is the most important aspect to 49% of all UK tenants.
Other factors include:
- Affordability – Tenants are reluctant to spend more than a third of gross income on rent
- Tenancy length – Younger tenants prefer shooter, more flexible agreements, while older tenants prefer the stability of multi-year agreements
- Designs and features – This is very subjective, but there are a few property features that make an investment more desirable to the market. These are extra space, car parking, en-suites, and building amenities.
Since 1 April 2021 overseas buyers have been required to pay a 2% surcharge on their Stamp Duty (SDLT) bill when buying property in the UK.
According to the HMRC website: If you’re not present in the UK for at least 183 days (6 months) during the 12 months before your purchase you are ‘not a UK resident’ for the purposes of SDLT.
You’ll usually pay a 2% surcharge if you’re buying a residential property in England or Northern Ireland on or after 1 April 2021.
You may not have to pay a surcharge on certain properties, transactions or if you’re a particular type of buyer.
Use the SDLT calculator to work out how much tax you’ll pay.
Properties are often purchased through overseas companies for confidentiality or tax reasons. The UK government recently announced that they intend to introduce a register of beneficial owners of overseas companies and other legal entities owning UK property in 2021.
Many overseas purchases are made via offshore companies. Indeed Land registry statistics show almost 100,000 international companies own UK real estate.
Please note that tax and property law are complex subjects and you should not rely on this article without professional advice on the facts of your case
There’s a good chance as an overseas investor you have never dealt with the British legal system before.
Of course, it may feel daunting and even uncomfortable to embark on such an important transaction without any degree of previous experience, but there are 2 important things to realise:
One, the British legal system is recognised the world over as a fair and transparent system.
Two, the basics of buying in the UK are very similar to many other territories.
Fundamentally, there are 4 stages:
- Searches are conducted on the property. This allows you to be sure the seller owns the property, it is legally built and tells you if there are any existing charges associated with the property.
- A contract is drawn up and agreed.
- Deposits are paid
- The balances are paid and the title deed is signed and then registered at the Land Registry
We hope you found the information contained within this article useful. If you still have a question about investing in UK property, please don’t hesitate to get in touch.