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UK the top hotspot for overseas residential investment post-Brexit

by Nikki Dale -

Demand from overseas supported the house price increases in 2020 and now in early 2021, even inner London demand boosted by overseas investors seeking to buy before higher taxes for non-UK residents kick in April this year.

The unexpected and unprecedented house price boom of 2020 was triggered by a number of factors such as, lockdown realisations with houses no longer fit for purpose e.g. capacity to work from home, demands for gardens and outdoor space, to be nearer parks, plus the stamp duty holiday.  All these reasons showed once again true resilience in the UK property market even in the toughest of years.

UK No. 1 for overseas residential investment in 2021

The European Real Estate Global Survey by DLA Piper, the international law firm showed the UK is the number one location for investment over the next twelve months.

The revealing survey of 500 investors, developers, and asset managers with more than USD3bn AUM from across Europe, China and the US was carried out in Q4 2020.

Q4 2020 survey report ranks the

UK highest for future residential

real estate investment

 

Overall, the top five countries for investment in residential assets over the next 12 months is the UK (33%), France (28%), Germany (25%), Spain (24%) and Italy (18%).

Top countries in which global companies, asset managers and developers wish to invest and manage residential assets over next 12 months

Rank Investors in
the EU5*
Investors
in
the US
Investors
in
China
Global total
1st Spain (33%) UK (39%) UK (52%) UK (33%)
2nd France (31%) Germany (27%) Germany (38%) France (28%)
3rd UK (28%) Hungary (17%) Finland (30%) Germany (25%)
4th Germany (22%) France (15%) France (28%) Spain (24%)
5th Italy (20%) Finland (12%) Denmark (26%) Italy (18%

 

Investment in European residential assets predicted to rise

Nearly three-quarters (74%) of respondents plan to invest in European residential assets over the next twelve months indicating that the market is attractive for future investment.

Other positive signals that came from the report were:

  • Of these, nearly one third or 29% expect to invest more in 2021 compared to 2020 on average increasing assets by nearly 30%.
  • When investing, the majority, a pleasing 88% will also choose to enter new countries in partnership with a local developer or manager.

Residential is a haven for most investors

Traditional residential assets are the preferred haven choice for most investors:

  • With 71% managing build or own-to-lease properties.
  • While 51% maintain student living premises.
  • And 44% senior and retirement living spaces.

Positivity reigns for the European real estate market

Despite the lingering COVID-19 pandemic and uncertainty over the shape of recovery, more than half of respondents feel positive for the outlook of the European real estate market – with only 11% feeling negative. Those headquartered in China and the EU5 are the most positive, 66% and 57% respectively.

Only 11% of investors feel negative

about the current outlook for the

European real estate market

 

Current outlook on the European real estate market

Sentiment Total
Positive 55%
Neutral 34%
Negative 11%

 

The top reasons respondents cited causes to be optimistic (55%):

  • 43% said there is high demand due to a shortfall in supply.
  • 43% said real estate income yields are higher than those for fixed income.
  • 40% said asset prices remain attractive.

The three reasons cited for those respondents that remain negative (11%):

  • 64% stated concerns over the pandemic and more lockdowns
  • 51% said the recession impacting demand.
  • 46% said the fact that the real estate market lacks daily liquidity in comparison to equity and bond markets.

Commenting on the findings, Olaf Schmidt, Real Estate partner and Managing Director of Practice Groups at DLA Piper, said:

“Investment in European residential real estate assets has been traditionally considered a market for local investors and it was largely dominated by local asset managers. High barriers to entry due to the existence of different national market practices and legal systems made it difficult to enter this market. However, over the past few years this has changed. Residential developers went international, asset managers have created teams specialised in the residential market segment, institutional capital opened up, and asset managers can now invest in the various forms of residential assets across Europe.”

“These findings show that despite the ongoing challenges of the COVID-19 pandemic, the European Real Estate market remains attractive because of its strong fundamentals, low interest rates, and high potential yield returns compared to equity markets. The UK remains an attractive market for investment also post-Brexit which should provide confirmation and reassurance that the UK is a vital hub for activity and growth.”

Will the 2% SDLT surcharge discourage overseas investors?

The government announced that from 1 April 2021, overseas buyers will have to pay a 2% surcharge on their SDLT bill when buying residential property in the UK. This surcharge has been introduced supposedly to pay for more affordable housing for people living in the UK.

UK property remained a popular investment choice for overseas buyers in 2020 and 2021 should still attract investment with a seen increased interest from foreign buyers unable to travel.  Once the travel restrictions are lifted pent-up demand from overseas investors allows them to view properties as planned.

The exchange rate, combined with low mortgages rates and the strong long-term anticipation of capital growth will more than make up for this additional tax for savvy overseas investors.

 

*A Censuswide survey commissioned on behalf of DLA Piper. Survey carried out between 13-16th October 2020. 
Mixture of 500 investors, developers and asset managers with a minimum USD3bn AUM across Europe, China and the US. 
Survey weighting is EU5 (75%), US (25%) and China (25%).

*EU5: UK, Germany, France, Spain, and Italy.

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