As a new decade dawns, many South African property investors are wondering what the UK has to offer in terms of both returns and capital growth.
As we move into the Brexit phase of the UK and “normal life” is now returning after the prolonged deadlock in Westminster, there is a definite sense, in the UK that 2020 will bring with it many positive developments. The new year promises to bring a resolution to the 42-month Brexit saga, and this in turn will trigger pent-up investment activity across the UK property market.
“There is a definite increase in enquiries for properties in the lower and middle market,” says Anthony Doyle, a director of Propwealth. “Recent surveys have indicated that people who adopted a wait-and-see approach during 2019 – and now that Brexit is looming – are now moving on with their property investing plans. The impasse appears to be over.”
1. London property forecast
House prices in the UK have continued to rise over the past three years, despite the uncertainty emanating from Brexit. In early December, Halifax released its latest House Price Index, showing that UK house prices were 2.1% higher in November 2019 than they were a year before – the average price now stands at £234 625.
There are indications that London property prices will start to see an upswing, as salary levels are increasing, making buying more affordable in a flat market.
This demand will cause these prices to increase as a result. As more investment comes into the UK, particuraly London, rents will be under pressure again and yields should start to increase as well.
2. The North West developments
Boris Johnson has promised to focus on the Northern Powerhouse Initiative – given that the Conservative Party enjoyed much success across the north in December’s election, and their intention to reward the newer supporters with greater investment into the region.
All this suggests that regional cities like Liverpool, Manchester, Newcastle, and Birmingham could attract significant attention from property buyers in 2020 onwards.
3. Construction and new-builds
One of the major property trends of 2020 will be the ability of the government to achieve its new-build targets. For property investors, this opens up a range of new opportunities – from blocks of flats, through to new-build housing complexes, there is a chance to purchase new property off-plan at below market price, (based on the market value of the completed asset). These can also provide returns in the short-term as a benefit of supplying vital capital to the developers.
“We see this already happening in Greater London, as far more affordable properties are coming to market through established developers” says Doyle. “These will offer excellent capital growth in the long run and good tenanting opportunities for landlords.”
4. Sterling and ZAR
The value of the pound has fallen over the last few years which has offered extra value to South African investors. This is a trend that is unlikely to be reversed in 2020.
Also, many investors are making use of their annual discretionary allowances to commence their portfolios as rand outflows from South Africa reach record levels.
5. UK government public investment
Public investment into new-builds and national digital infrastructure development is also likely, which will have a bearing on current and future property investments.
Experts are predicting notable and positive policy announcements by the UK Chancellor later this year. The UK is once again open for business.
6. Stamp duty
From February, domestic affairs will once again take centre stage and a new budget will be announced by end-March. For property investors, perhaps the most important would be changes to stamp duty. The Conservative Party has stated it will implement a 3% surcharge for overseas buyers.
“The stamp duty rates in the UK still remain extremely competitive, and far lower than many global hotspots when it comes to international real estate investment, including Hong Kong, Berlin and Sydney,”” says Doyle. “Furthermore, for lower end, entry-level properties this will have little effect on yields as the amounts are relatively small.”
So – where should I invest?
Doyle highlights the North West as a buy-to-let hotspot, particularly Liverpool and Manchester. Many existing, renovated properties can be acquired for £50 000 to £65 000 with net yields of 6% plus. Regeneration in these areas is massive and will continue, according to government’s medium-term plans.
“Off-plan, entry-level real estate in Greater London is also a very good option,” he remarks. “These schemes offer what tenants want – lifestyle, convenience and location. The flats can be mortgaged as well. This adds up to a great long-term investment strategy when coupled with cash-generating, cheaper properties, say in Liverpool.”
London properties start from £320 000 and can be mortgaged via one of Propwealth’s mortgage brokers.
In February, Propwealth is promoting a selection of entry-level properties during a visit to South Africa. These offer good yields and capital growth – in Liverpool, from £50 000, in Manchester from £220 000 and in London from £320 000.