As the dust settles following the vote to leave the EU, Hamish Pound writes on how the UK has become more attractive for overseas investors, especially when it comes to property.
The year to April 2016 saw foreign investments in the UK reach record levels firmly cementing the UK’s position as the most popular country in Europe for overseas investment. Among those investing in the UK, US investors continue to account for the most projects with Chinese and Indian investors second and third respectively.
Following the vote to leave the EU, and despite initial apprehension from investors, the outlook remains positive. The Office for National Statistics has confirmed that GDP increased in the second quarter of the year (including the time immediately following the Brexit vote), retail sales were up 1.9 per cent in July, household spending is growing at the fastest rate in eight years and unemployment is also falling across the UK.
The weakened sterling post-Brexit, coupled with the Bank of England’s decision to lower the interest rate at the beginning of August, has meant that UK assets are now 10-15 percent cheaper than before the Brexit vote. This has resulted in financial advisers reporting a 40 per cent increase in enquiries for UK residential and commercial property from domestic and overseas buyers keen to make the most of the opportunity.
In the weeks after the Brexit vote the uptick in interest saw a number of high-profile property sales and bids announced. Notably, Saudi and UK investors bid $1.3 billion for London’s Grosvenor House Hotel and Abu Dhabi Financial Group expressed its interest to acquire more London sites.
More recently, there has also been a sharp increase in Chinese investors looking to acquire ‘trophy assets’ in the UK. Following the Chinese president, Xi Jinping’s visit to Manchester City’s football ground with David Cameron, Chinese groups are spending billions acquiring European football clubs. The latest high-profile deal is a multi-million pound bid from Everbright and PCP Capital Partners for Liverpool FC. If the deal goes ahead, it will be the largest Chinese investment in a UK football club in history.
For overseas investors looking to purchase outside of the capital, properties in Manchester and Liverpool are delivering some of the highest rental yields in the UK. These returns look set to continue following Theresa May’s commitment to the Northern Powerhouse plans laid out by George Osbourne, investing in Northern cities and the Midlands as an ‘engine for growth’. This commitment was further reinforced by the decision to host the Olympic ‘welcome home’ parade in the UK’s ‘second city’, Manchester.
The upturn in the property market and wider overseas investment in the UK is here to stay over the coming months and any initial uncertainty caused by Brexit has meant that the government is unlikely to introduce any further taxes on foreign home ownership for the foreseeable future. The new CGT charges brought into force in April last year – intended to bring foreign buyers in line with UK landlords and throw some cold water over London’s soaring prices – has, in the longer-term, had little impact on overseas investors looking for stable assets.
The reality is that the UK still presents a safe haven for overseas property investors, and one that is now more attractive than before.