The UK has long been a favourite destination for overseas property investors thanks to the impressive returns on offer, and a new report from Hamptons International shows that a temporary weakness of the pound is only strengthening the appeal.
The research shows that the proportion of homes in the UK’s Private Rented Sector (PRS) owned by non-resident landlords has increased to 11%, up from 7% a year ago – the first year-on-year increase since Hamptons began keeping records in 2010.
Hamptons cites the depreciation of the Sterling due to the Brexit process as one of the main motivating factors for overseas landlords, as it is now cheaper to invest from abroad and take advantage of the favourable exchange rate. Indeed, the value of British currency has fallen far enough for foreign investors to more than cover the additional 3% Stamp Duty surcharge introduced by the government in April 2016.
For example, the declining value of GBP compared to the Hong Kong Dollar illustrates clearly the savings on offer for investors right now thanks to the temporarily weak pound.
As of Friday 15th November, exchange rates from XE.com show that purchasing a UK property worth £200,000 would cost a Hong Kong-based investor HK$2,015,860. However, a property purchased at the same price in 2015 – a year before the Brexit referendum – would have cost HK$2,460,868.
That means that a foreign investor based in Hong Kong could save HK$445,008 by investing in UK property today thanks to the weakness of the pound.
In addition, further Hamptons research from this month revealed that the average UK rent has climbed to £999 pcm – growth of 2.2% year-on-year. This steady growth in rents is confirmed by the latest HomeLet Rental Index which shows rents increasing in every region of the country, and the annual average growth rate standing at 2.8% when London is excluded.
Significantly, the year-on-year rental growth figures supplied by both Hamptons and HomeLet are above the current rate of inflation, recorded at 1.5% by the Consumer Prices Index (CPI) for October 2019 – demonstrating the underlying strength of the UK rental market and, showing why an increasing number of overseas landlords are investing in UK property.
The opportunity on offer to foreign investors could not be clearer. Not only can you make the most of the weak pound and purchase UK property at a lower price, the property you invest in is performing more strongly than ever. What’s more, these benefits are magnified when you buy off-plan.
When you purchase an off-plan property, the price is locked in throughout the construction process no matter how much property values rise over that time. This means that when the property is completed, you will essentially have bought it at a below market rate and will have instantly earned capital appreciation.
If overseas investors can lock in this below-market off-plan price when the pound is weak, then the benefits multiply and the capital appreciation becomes even more significant. However, it is likely that these conditions are only temporary, making it important for overseas investors to act fast in order to secure their discounted price and not miss this window of opportunity.
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