Posted: Thursday 28th February 2019
Property investment is a popular source of income and a long-term career choice for many individuals around the world. However, some areas of the globe provide better opportunities for investors and are appreciated as highly lucrative destinations for foreign investment. The UK is regarded as one of those attractive places for foreigners to spend money on property in hopes of high returns and profitability.
Real estate markets are one of the stable choices of investment when compared to other investment vehicles such as stocks or bonds. The market is relatively predictable and can be forecasted with the necessary skills and knowledge of influential factors or uprising trends. In order to stay informed, it is common for investors to work with professional property consultants for guidance and assistance when building a property investment portfolio.
Investing in property is certainly not a simple and straightforward task. Although it may seem like the easy way to a million-pound bank account, property investing is accompanied by a range of skills and expertise necessary for the investor the make the right decision that will ultimately maximize wealth.
For foreign investors, the UK remains in the list of top destinations to invest in for a number of reasons. The property market in the country has attracted foreigners with its healthy legal system and increasing house prices. Let’s dig deeper into the factors, which make Britain so tempting for property investment.
London is a highly attractive destination for investing in property by overseas investors due to its diverse benefits and opportunities. In 2018, 90% of Asian investors focused on London as their key market for property investment in the UK. A reflection of the tremendous interest in London property can be found in the increase in housing prices, not only in the capital city but the surrounding destinations as well.
Despite the concerns related to Brexit, housing prices in the UK were still on the rise towards the end of 2018. During the period between October and December 2018 house prices saw a 1.3% increase in comparison to the same time period in 2017, showing that the stability of the market is maintained. Expectations for 2019 are that the house prices will drop as a result of the progress of Brexit, opening up new opportunities for investors to have more accessible purchase options.
The return on investment will widely vary depending on the type of property you have invested in, its location, future plans in the location and its surroundings and more. As we have previously discussed, ROI or return on investment is defined by:
“a performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments. ROI measures the amount of return on investment, relative to the investment’s cost.”
ROI is an essential metric in establishing whether an investment is worth it according to the investor’s financial objectives or is one that should be overlooked and avoided. For instance, yields on a buy-to-let acquisition vary between 4% and 5% in the UK and can reach up to 10% in locations which are of high interest.
Calculating the return on investment of a selected property may be burdensome for an inexperienced investor and professional help is advised in order to build a successful investment portfolio that will make money work for you.
The UK’s population is regarded as highly dynamic, especially in places such as London. The city constantly welcomes and says goodbye to businessmen, working couples, students, or families, making buy-to-let an especially trending source of income. Statistics from 2016 revealed that the number of people renting property was larger than those owning property, opening up a huge opportunity for foreign investors to rent out.
The trend continues today and homeowners renting out property rarely see empty periods with no tenants to occupy the homes or rooms available to let on the market. Not to mention that the UK is aggressively becoming a crowded country in terms of population, making it easy for professionals and experienced investors to project the return on investment of property for a longer period of time.
The UK is well-known for its strong business environment, preventing a potential collapse of the real estate market. Hence, foreign investors see comfort and stability in spending their available capital in real estate, with almost guaranteed financial success.
A recent development which should not be underestimated is the 2016 Northern Powerhouse Partnership. The arrangement has the aim of strengthening and increasing the North of England’s contribution to the UK’s economy and stability. Taking necessary measures to reach the objective has resulted in the creation of the High Speed 2 rail line and Square Kilometer Array.
The two massive projects have given birth to a large number of job positions and have greatly influenced the economy in a positive way. Such successful initiatives also make the time and conditions perfect for investment in UK property.
The UK housing shortage is another reason for the high interest in renting the property instead of buying by UK based individuals. The shortage has led to a housing price boom, making it difficult for first-time buyers to find an affordable property. However, from an investor’s perspective, this is a lucrative opportunity to get a higher return on the investment by selling or renting.
The shortage has also influenced the government, which has felt pressure from civilians and other institutions. As a result, the UK government has made a promise to create 1 million homes by the end of 2020, opening up the market for foreign investment even further. Foreign investment will also be necessary to meet the rising demand.
Although the factor transport may not be one of the first things investors consider when reviewing a country for its property market potential, it does play a significant role in attracting investors. In the UK the High Speed 2 Rail provides links between Birmingham, East Midlands, London, Leeds, and Manchester. The UK’s plan is to equip all of the cities with their independent city center station by 2033.
How does this influence property investors?
Travel between dominant cities in the UK will be made especially easy and the required time to travel from point A to point B will significantly be decreased, making it possible to commute to work. Furthermore, the railway provides additional job openings and economic growth to the whole environment. Due to the available source of transport, a range of businesses and individuals are considering moving to a slightly calmer place to live and operate, creating new property opportunities for other parts of the country, which foreign investors are likely to appreciate from a financial perspective.
We have already touched upon the growth of house prices which seems like a trend that is here to stay. Property in the UK is likely to remain a highly valuable asset according to projections and forecasts. Although Brexit may have led to a controversial opinion regarding the real estate market, research suggests that there is no need to worry.
The first half of 2019 is expected to give a boost to housing prices by 1% only to increase to 1.5% by the end of the year. By 2024 forecasts reveal that housing prices should increase by 11%, meaning that investors of today will have the opportunity to sell at significantly higher costs, making a higher return on investment and freeing capital for their next property investment projects. Alternatively, as buy-to-let is also a trending option which is expecting to last, investors can make a regular income by managing a few buy-to-let properties in the country.
Foreigners find it tempting to do business in the UK not only from a property investors’ point of view mainly because of the favorable tax environment for foreigners. Compared to other countries around the world, the UK has one of the best tax systems for foreign investors. The country’s corporate tax is 28%, making the UK the country with the lowest tax from the G7.
However, although the picture may seem favorable, foreign investors must be conscious of falling into tax traps as a result of being misinformed or not having enough research prior to making a decision. For instance, foreign property investors should ask a professional property consultant regarding the additional taxes that may be applicable to the specific property. There is a Non-Residential Landlord Scheme that applies to foreign investors, Stamp Duty Land Tax applicable to all property investors, and possible taxes upon exit which may apply.
It is essential to carefully calculate all ongoing expenses after purchase which may have to enter a strict budgeting plan in order to keep a healthy investment portfolio as a foreign investor.
This scheme only applies to foreign investors who live outside the UK and are landlords of buy-to-let properties. The scheme required the property owner to pay a fee on rental profits made from the UK-based property in the country rather than an income tax paid to the country of origin or their current location.
It is necessary to collect all the necessary information regarding the non-residential landlord scheme in order to avoid significant fines or being accused of illegal business in the UK. Expert advice can be received from an expert professional consultant who has experience and knowledge of the UK real estate and property market.
A consultant can also help foreign investors make informed decisions and successfully operate as investors in a new for their country. From a legal perspective, every country has its own, unique set of laws regarding business and investing and it is mandatory to be fully aware of the legal system of the country where you have decided to invest. Even if you are an expert investor in your country of origin, the business and investment environment overseas may be completely different to what you are used to, exposing you to potentially making a risky decision which may harm your property investment portfolio.
Get in touch with the professionals at Seed Property Consultants who can put you in touch with the right people or institutions and help your property investment in the UK as a foreigner successful and financially rewarding!