15th January 2019

UK buy-to-let property still a good bet for SA investors

It’s easy to doubt the UK property market at the moment. Annual growth is currently at its lowest levels in five years. London, arguably the main driving force of the UK property market, is seriously underperforming and the never-ending threat of the unknown in the form of Brexit are all playing their part.

Anthony Doyle from UK-based Propwealth, which deals with South African investors, says “property investors might actually want to think twice” as new research reveals average UK prices over any five-year period in the past half-century would have resulted in a buy-to-let profit 83% of the time.

Latest property market research

Property investment platform British Pearl shows that, rarely in the past 50 years, have house prices dropped over a five-year period, with average house price appreciation over that time topping an impressive 58.6% over five years.

Property prices only fell in five periods, representing an 89.1% success rate. British Pearl then factored in Stamp Duty and conservative estimates for mortgage payments, legal fees and interest. This then identified a further three years in which investors who bought properties would have lost money over the following five – a success rate of 82.6%.

The only periods in which house prices fell were during some of the UK’s most challenging economic downturns. They included 1989, 1990, 1991 – while Britain was grappling with recession – as well as 2007 and 2008, as Britain dealt with the fallout from the global financial crisis.

The best profit would have been enjoyed by the average landlord buying in 1969, resulting in a gain of £4 589 – a return of 148.6% as prices rose from £3 818 to £8 936.

The sharpest fall in house prices occurred between 2007 and 2012 when average UK values slumped by 7.9% on average.

British Pearl’s findings come as a warning to savers, homeowners and investors who might be considering second-guessing the market by exiting with the intention of buying back in at lower prices. This has grown increasingly tempting in the past five years as values in many areas have staged remarkable rallies. In London, for example, the average house price has climbed 51% since 2013, rising from £320,921 to £484,584. And the latest house price data from the Halifax revealed that the cost of the average property hit a new record high of £230,280 in July.

Those investors who ran for the hills after the dip between April 2007 and April 2013, only for growth to recover in the years that followed, will be kicking themselves for acting on impulse and abandoning property altogether.

The analysis flies in the face of an increasingly sceptical outlook in some quarters.

Focus on cash flow instead of capital growth

Doyle says this research shows investors who “play their cards right and hold their nerve” in the midst of economic or political upheaval are still likely to come out on top. “History shows us that investors who are prepared to weather storms rather than run for cover are still able to make strong returns at times from investments that present a very limited risk of loss.

“We know that returns can be bolstered with careful property selection, identifying regional trends and regenerating areas of rental yield strength. Focus on cash flow and play the long game. UK property has a track record of returns and, no matter how tempting it is to think prices are unsustainable, the level of demand for housing in Britain makes property one of the most attractive asset classes on an ongoing basis.”

Best types of UK investment property

Regeneration zones where people can’t afford to buy are the focus of the savvy buy-to-let investor. The current hotspots are Liverpool, Manchester and Birmingham. They expect to see above average returns in yields and capital growth for the foreseeable future.

A perfect example of investing correctly is regenerating areas like the area of North Liverpool, which is seeing excellent cash flow returns of over 9% gross and capital growth over 5% per annum. Prices for these properties start from £50 000 to £69 000 and are fully managed.

Anthony and Craig from Propwealth will be in Johannesburg on 15 and 16 November, Cape Town on 21 November and Durban on 27 November. For an appointment, email or book online via the website.