UK’S Vibrant Property Market
This international market has reasons for its attractiveness
Which country do you think is making headways even during times of economic uncertainty? You will guess it right, if you think it is none other than the United Kingdom.
The country has a stable government with good policies in place, and a relatively stable population to sustain the economic growth of the country, particularly in the property sector.
The advantage of investing in UK property
“In the UK, you either do development from ground zero or refurbished properties. It takes about 24 months for a ground-zero development to be completed, compared to Malaysia, where the duration can be anywhere from 36 months and more,” said Millionaire Investment Group Network International (MIG) chief executive officer Dato’ Brian Wee.
He pointed out that, it is also very good for investors to invest in refurbished property.
“The whole refurbishment process is going to take a maximum of 12 months, you can take over old mills, and refurbish it, and issue strata titles to purchasers, we give out fully furnished units and the target market could be students or working adult,” added Wee.
“United Kingdom is a country whereby people who reside there, don’t really own many properties in the UK and do not buy properties to begin with. The reason being was because there were so many migrants from Eastern Europe,” mentioned Wee.
“Five years back, the UK was very open to those Europeans to come into the UK, so they are here to make a living, but they don’t end up buying properties, so that presents an opportunity to Asians to move over,” opined Wee.
He highlighted that, “In fact, there are so many write-ups about Hong Kong’s richest man, Li Ka-Shing, almost buying half of the United Kingdom, he seems to be investing in everything, and recently, he even bought a UK telecommunication company, O2.”
“The UK’s refusal to enter into the EURO is a sign that tells us that the UK is in for the long haul, they don’t want to be exposed to the EURO traps. Their first decision not to enter EURO doesn’t surprise me as I have been following the UK’s economic policy for a very long time,” according to Wee.
“What excites me is the consistency that the UK has been able to deliver, and even the global financial crisis didn’t hurt them as much as other European nations, due to their conservative components in their economic policies,” said Wee.
“The sustainable growth is what we are looking at in the UK, compared to the world. The UK continues to be a sustainable country, their growth is going to be slow but steady over the years,” Wee elaborated.
Wee opined that “If everyone is a follower of Robert Kiyosaki, I would say picking up a property in the UK is a definite yes.”
Should Malaysians invest in UK property?
“The most popular destinations for overseas properties are currently still the UK, followed by Australia. Many are looking around elsewhere to the US and Japan but in much smaller numbers,” said Savills (Malaysia) deputy managing director Paul Khong.
He commented that with the falling ringgit in recent months, many local investors are actively looking at foreign investments, especially in properties, to hedge their risks.
He shared that many are looking at reorganising their investment baskets with a little more emphasis on overseas properties now. “We expect many will be looking for some investments, especially in the UK.”
“They are looking for strong currencies to house their money and/or investments and also capital appreciation from property investments,” added Khong.
Apart from being a viable hedge, it provides a good stream of income and also some potential for capital gains, as compared to pure Forex investments. With professional property management services available, minimal supervision is required.
London has been the top favourite destination for investments worldwide, being an international market which is popular to international investors, ranging from the Mainland Chinese, Russians, and Arabs to Asians and especially the Malaysians.
According to Khong, Malaysians relate well to London/UK, “as many have shopped, lived, studied and graduated from there. It is a familiar place for us and many would want to own a piece of real estate in either zone 1 or 2 in London.”
Khong said, based on recent reports, UK house prices are reported to be on the rise again after the Conservative election victory.
Prices in London reported an average increase of about GBP47,000 in 12 months with above 10% increments in 28 boroughs from the Capital’s 33. Buyers’ demand and confidence are still robust and moving strongly into the summer now.
“Foreign investors are also treated equally here with no ‘additional buyers stamp duty’ or other special conditions to deter foreign investments such as restriction in re-sales,” pointed Khong.
Savills was established in 1855 and is currently a leading real estate provider listed in the London Stock Exchange. It has 600 offices and associates worldwide with 27,000 staff in the UK, Europe, Americas, Asia Pacific, Africa, and Middle East.
Khong highlighted that Savills Malaysia (www.savills.com.my) is bringing a host of new residential units for sale in London for summer 2015 in Malaysia offering more than 50 projects in and around London and about 10 more new project releases for the year.
“In our latest summer offerings, we currently have 15 projects in Central London, 18 in South West London, 8 in City and East London, 4 in North London and the remaining stock in Greater London,” said Khong.
Savills is doing a sneak preview for the top-end premium ‘Chelsea Barracks’ (developed by Qatar Diar UK) on Chelsea Bridge Street in Belgravia in zone 1 (with postcode @ SW1). This is a super high-end offering sited on a 12.8-acre prime site in the heart of London. It is sited only a short distance away from Sloane Square Station.
On the top of the list, the higher-end offerings include One Hyde Park (Knightsbridge), Fitzroy Place (Fitzrovia), Chelsea Galleries (Chelsea), The Mansion (Marylebone) and Rathbone (Fitzrovia) to name a few.
There is another interesting entry-level project at Croydon vicinity (29 minutes to Oxford Circus) known as ‘Ruskin Square’ which is being offered over GBP600 per sq.ft.
“Ruskin Square is a new residential redevelopment project here lying near the new ‘Westfield Mall’ which is due for completion in 2018 with 250 new shops. We are selling it at its initial phase now and launch prices are attractive,” said Khong.
A 2-bedroom apartment (about 800 sq.ft.) on the upper floor (15th Floor) in Ruskin Square @ Croydon will costå about GBP520,000.
For something closer to the city centre in a good address, like Fulham for example, will costs 2.5 times more. However, there are also quite a number of HNWI (high net-worth individuals) who have also bought into the high-end segments in the UK for investments.
Khong believes that the majority of average Malaysians will be looking at 1 to 2-bedroom apartments at a pricing of GBP 600 to 1,500 per sq.ft. at a total cap of about GBP1.8 million (approx. RM10million) per unit generally.
The pros of investing in UK
With a population of 63,742,977 million (year 2014) people and rising, the United Kingdom (UK) is the 22nd most populous country in the world. The land area covered 241,930 sq. km of mostly rugged hills and low mountains, level to rolling plains in east and southeast.
It is twice the size of Pennsylvania, slightly smaller than Oregon.
The UK is one of five permanent members of the UN Security Council and a founding member of NATO and the Commonwealth, and pursues a global approach to foreign policy.
An active member of the EU, the UK chose to remain outside the Economic and Monetary Union.
The majority of the UK’s population or 41% of them are categorised between the ages of 25-54 years old.
With a relatively stable population consisting of the young and the seniors, this country definitely has a good potential for investors wanting to invest in the UK.
More citizens of the United Kingdom, are moving to more urbanised areas in the country. 82.3% of the population are located in urbanised areas as of last year.
Some of the urbanised areas in the United Kingdom are London, which recorded a healthy population of 10.2 million people, 2.62 million people in Manchester, 2.5 million in Birmingham, 1.22 million in Glasgow, 876,000 in Southampton, and 869,000 in Liverpool till the end of last year.
Annually, the rate of urbanisation stood at 0.88% which is considered a healthy indication of the urbanisation growth for the country.
The United Kingdom is the third-largest economy among the European countries after Germany and France.
The country’s capital, London, is a leading trading power and financial centre in the world. Services such as banking, insurance, and business services, are currently driving the UK’s GDP growth.
The UK was hit hard during the 2008 financial crisis due to the importance of its financial sector.
The UK’s economic problems drove the economy into recession in the latter half of 2008, prompting the then Labour government lead by Gordon Brown to implement a number of measures to stimulate the economy and stabilise the financial markets.
In year 2010, the coalition government lead by David Cameron between the Conservatives and the Liberal Democrats initiated austerity programmes, which aimed to lower London’s budget deficit from about 11% of GDP in 2010 to nearly 1% by 2015.
In year 2012, weak consumer spending and subdued business investment weighed on the economy,.However, in 2013, GDP grew by 1.8%, accelerating unexpectedly because of greater consumer spending and a recovering housing market.
The right infrastructure
Outside central London, Acton has seen the largest increase, 77% over the last six years, a third more than the average for the area.
In central London, Farringdon and Paddington have both outperformed the local area by approximately 24%. Sheffield, at the easternmost end of the Crossrail line, has outperformed the local market by nearly 12%.
Knight Frank has predicted London prices will rise 18% by the end of 2018, but said the areas around Crossrail stations would continue to rise rapidly.
The tunnelling for Crossrail, Europe’s largest infrastructure project, is nearly complete, and the 73-mile (118km) railway line is expected to open in late 2018.
The high-speed line will increase London’s overall rail capacity by 10%.The company’s survey shows that 91% of tenants in London want to live within 1km of a transport link.
“Over the last 12 months, the price ‘ripple’ effect in London has really started to take effect, with stronger price growth in areas surrounding central London,” commented Knight Frank UK head of residential research Gráinne Gilmore.
House prices within a 15-minute walk of western Crossrail stations have risen by an average 28% since 2008, 6% more than the local market. In the eastern section, values have grown by 21%, outperforming local markets by a more modest 3%.
“This could help feed into stronger price growth around stations towards the east and west, especially those which have underperformed to date, and where housing supply is set to be delivered in the coming years,” said Gilmore.
She added that the planned levels of development along the outer sections of the Crossrail route should provide scope for price uplifts as the public realm is improved.
The amenities received a boost and buyers have new reasons to visit the area. The relative ‘discount’ in terms of price per square foot in these areas, compared to more central locations, is also likely to work in their favour.
The rental market in the UK
North West, East Anglia, Yorkshire, and Humber are the only three regions in the country to have shown a decline in rental prices.
Knight Frank’s analysis shows there are approximately 20,000 rental properties in London with a capital value of more than GBP2 million.
The highest concentration is in the prime central London boroughs of Westminster, Kensington and Chelsea, and there are clusters in Camden and an area of south-western London that stretches from Hammersmith & Fulham to Richmond.
Prime central London rental values have been rising this year as the UK economy improved, though growth was zero in November due to a seasonal slowdown and a degree of caution over economic conditions in other parts of the world.
Rental yields in prime central London rose to 2.92% in November 2014, continuing a climb back towards 3%, a figure they last surpassed 18 months ago.
The data collected by HomeLet shows that rents have shot up 12.5% across the country with tenants on average asked to fork out GBP751 a month outside the capital.
The cost of renting property is spiralling out of control with the average price of a flat or a house in London now hitting GBP1,500 a month.
Rental values above GBP 1,500 per week in prime central London grew 3.8% between January and November, while the figure was 2.9% for properties below GBP1,500 per week, reflecting how properties in higher price brackets are performing better.
The surveys are based on 13,000 tenant reference applications last month, 3,000 of which were in London.
Therefore, tenants in the capital will be hit the hardest. Its survey also shows rental costs over the past three months, have gone up five times faster than tenant income.
The spike in rental reflects the general crisis in the UK with a shortage of housing pushing the cost of buying a property beyond the reach of many first-time buyers.
The super-prime market, which covers rental values of GBP5,000 per week and above, is buoyant versus last year and indicates how relocation budgets are growing for the most senior positions in companies.
Temperate property investment climate
“Growing uncertainty has caused demand to become more subdued in the prime London market. As high-value property comes under political focus in the short-term, the grounds for longer-term optimism remain strong,” said Knight Frank head of London residential research Tom Bill.
Knight Frank forecasted cumulative growth of 22% between 2015 and 2019 as demand continues to exceed supply. Forecast indicates the London population will grow by in excess of 100,000 every year for the next 10 years while it remains the city of choice for the global wealthy.
Last year, in December, Chancellor George Osborne increased stamp duty for properties above GBP 937,500.
Knight Frank’s report stated that in the short-term, the stamp duty changes will lead to some harder negotiations, between buyers and vendors, and instances where values may adjust downwards slightly to account for the new higher charge.
Given the phlegmatic way in which the London property market has reacted to previous similar changes, history indicates it will absorb the changes in the short to medium-term.
However, the stamp duty changes have also redrawn the parameters of a long-standing debate surrounding the taxation of high-value residential property.
After numerous changes in recent years that include capital gains tax reform for overseas-based buyers and higher taxation on ‘enveloped dwellings’, the stamp duty changes mean it is now difficult to argue that high-value property is under-taxed.
A comparison of taxation in New York, Paris, Singapore, and Hong Kong shows London is in the middle of the pack in terms of property taxation.
Stamp duty is higher in both Asian markets, while New York residents are taxed on their global wealth.
Prime London property remained an attractive proposition for investors in 2014, with total returns in prime central and prime outer London markedly higher than other asset classes despite the backdrop of global economic uncertainties.
Price growth of 9% in prime outer London was led by the eastern areas of Canary Wharf and Wapping.
Annual growth in prime central London eased to 6.1% in November, with the strongest increases away from traditional prime areas.
How is the UK property doing so far?
The housing market in the United Kingdom saw a spring and summer boom last year, particularly the South of England and in London, before activity dropped away a little towards the end of the year.
According to the Nationwide’s own lending data, there were some significant regional differences, the prices in London, the capital of the country rose by 17.8% over the course of the year, in comparison of only 1.4% in Wales.
The Office for the National Statistics said that prices rose at an annual rate of 5.5% down from 9.6% in March indicating a sharp weakening in London property prices.
Another survey done by rival lender, the Halifax, says that prices rose by 8.5% over the year, although its official house price index data has not yet been published. “Occupier take-up is being supported by record employment growth, with 2014 seeing the fastest growth in London since the late 1990s and the fastest growth for the UK as a whole since 1988,” said Jones Lang LaSalle UK head of research Ben Burston.
“The weight of capital, competition for assets, and forecast rental growth makes investors more comfortable moving the risk curve,” explained Jones Lang LaSalle UK associates director Alyson Martinovich
As a result, prime rents have risen by 2% in three months to GBP 117.50 per sq.ft. (assuming a 10,000 sq.ft. floor plate and a 10 year term), strong occupier demand in the core will drive further rental growth in 2015; JLL forecast rents to reach GBP125 per sq.ft. by the end of the year.
“Yes, it is still a good time to invest in the UK as the fundamentals are still very strong and will underpin the market,” commented Jazmine Goh, Head of International Residential Property Service, JLL Property Services (Malaysia) Sdn Bhd.
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