As we overcome the initial shock of the COVID-19 pandemic, only now are we beginning to realise its economic ramifications. In turn, this is compelling investors to take a step back and re-evaluate their financial portfolios.
The majority of the world’s major economies are now in recession. GDP levels in the largest advanced economies are expected to remain around 3% to 4% lower than their pre-virus projections until at least 2025, according to a Fitch Ratings report. Of course, such forecasts are based on the current state of affairs. A second outbreak of infections or the discovery of a vaccine could drastically alter these figures.
Either way, to hedge against market uncertainty, investors are looking to markets and assets that are able to protect the value of their wealth with the added potential of long-term capital growth.
Demand for property is rising
Here in the UK, there has been a notable influx of international buyers entering the property market.
According to some estate agencies, there has been a noticeable surge in interest from Hong Kong residents looking for buy-to-let opportunities in the North of England. This rise in interest from Hong Kong buyers is no doubt linked to the civil unrest in the jurisdiction. The market value of residential properties in the North of England is also significantly less than the average house price of London property.
Nonetheless, COVID-19 has not dissuaded international interest in Prime Central London (PCL) residential property; it has had the opposite effect. Beauchamp Estates has assisted in $374 million worth of investment into PCL from Hong Kong and Chinese residents between December 2019 and June 2020. This represents 20% of all property transactions above £10 million in the capital.
More recently, between mid-June and mid-August, estate agent Dexters revealed that PCL sales for properties over £2 million were 85% higher than during the same period last year. This is an astounding statistic and a reaffirmation of UK real estate’s position as a safe and secure asset in times of uncertainty. Dexters also reported that the majority of these transactions were by cash buyers originating from Hong Kong, Singapore, the UAE, India, the US and Italy.
Why are international investors flocking to UK property?
To understand why there has been a profound increase in non-UK-resident buyer demand for bricks and mortar, we must first recognise the advantages UK property offers international investors.
The first has to do with capital growth. Demand for UK property is outpacing supply, and while the government is attempting to strike a balance by investing in the construction of new-build homes, it is not known whether supply will ever be able to meet demand. As a result, house prices in the UK have been rising; between 2010 and 2019, the average value increased by 33%.
The second reason why international buyers look to the UK has to do with the political and economic stability of the country. This is true particularly when we look to London—a bustling cosmopolitan centre and global financial capital.
While these factors are constant, UK Chancellor Rishi Sunak’s introduction of a Stamp Duty Land Tax holiday which applies to the first £500,000 of all property sales in England and Northern Ireland has been the catalysing event. Now, international buyers are exempt from paying as much as £15,000 in SDLT.
So far, the SDLT holiday has been well received. Nationwide’s July House Price Index revealed an annual house price growth of 1.5%, and a monthly gain of 1.7%. Based on the flurry of transactions we are seeing at the moment it looks as though house prices will steadily rise over the next few months.
On top of this, we also need to remember that from April 2021, non-resident buyers of real estate in England and Northern Ireland will be subject to a 2% SDLT surcharge. On that basis, by acting now before both the holiday expires and the 2% surcharge is introduced, international investors could make significant savings.
Looking to property in times of uncertainty
In order to protect their wealth, we are likely to see a steady increase in the number of international buyers taking advantage of new UK property opportunities, particularly when it comes to prime property. This will be vital in supporting the post-pandemic recovery of the UK and something that should be readily encouraged by the government.
For now, lenders and brokers need to ensure they are fully aware of the potential tax issues applicable to non-resident buyers. Doing so will mean the market can take full advantage of international demand for residential real estate, be it buy-to-let opportunities in the North of England or prime property in the capital.
