Foreign Investment And The London Property Market

July 26, 2019

A hard Brexit this autumn holds the possibility to turn Great Britain into an unsteady target location for international investors. Since the new Prime Minister is one of the leading heads behind the “Vote Leave” campaign, pulling out of the EU without a deal seems more and more possible. London has huge amounts of the property market of foreign capital flowing into the country, at least until now. But how did international investors react to the referendum in 2016 and what does this tell us about what might happen in the aftermath of a hard Brexit in the near future?

As a matter of fact, the proportion of foreign property owners has been declining for some time. Research by Hamptons International shows that the share of new letting by landlords based overseas has dropped from 14.4% in 2010 to 5.8% in 2018. (Graph Data: Hamptons Overseas)

London Property Market - Graph - proportion of landlords based overseas

This decline was particularly severe in London, falling from 26% in 2010 to 10.5% in 2018. While this might seem like international investors withdrawing from the UK market, this shift away from buy-to-let investments is more general in nature. Overall sales to landlords dropped from 18.7% in 2011 to 11.4% in 2018. A trend caused by regulation which grew ever more harshly beginning in 2014. A three-percentage point surcharge on stamp duty land tax for second homes in England and Northern Ireland, combined with a stricter tax regime made buy-to-let investors question the profitability of the market. International investors got it even worse with the removal of capital gains tax exemptions for non-residents.

2018 A Year Of Change

In 2018, however, London seemed to undergo a reversal of the trend with a rise of 5 percentage points in the first half of the year. International investors are especially active in the high-end segment of the market with 57% of London’s prime properties sold in the second half of 2018 being bought by foreigners (this is the highest level in six years and above the 40% level recorded before the referendum). In this case, the Brexit uncertainty seems to be outweighed by falling house prices and the weak sterling, providing a heavy discount to foreign buyers. Overall the market in the capital looks as if it lost some of its attraction for international investors, as other areas of the UK seem to be on the rise. Chinese investors, for example, shift their attention away from the capital to cities such as Manchester and Liverpool, seeking profitable investments.

Property In The UK Still Attractive Despite Uncertainty

Property in the UK continues to be an attractive asset for investors all over the world. Even in the uncertainty surrounding Brexit, foreigners still seek investments in the London property market, as a survey by Knight Frank amongst European real estate investors – that identifies the UK as the most preferred investment target for 2019 – confirms. It remains to be seen how the political landscape will change in the coming months, but it seems unlikely that foreign capital will leave the UK market anytime soon.

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