During periods of market volatility, investors look to assets to be able to quickly recover from downturns and provide long-term, stable returns on investment. With COVID-19 incurring an unprecedented level of global uncertainty, this exact process is currently playing out.
As countries overcome the initial impact of the COVID-19 pandemic, only now are we witnessing the potential, long-lasting ramifications of this pandemic on economic growth and productivity. As such, investors have begun re-investing their wealth into assets more attuned to the current global outlook and are hedging their portfolios against further market uncertainty.
As a result, investors are now turning to UK real estate, particularly residential properties based in London. The international demand for bricks and mortar has instigated what many are terming a property mini boom. The question is whether such momentum can be sustained over the long term. Importantly, I believe there are many reasons why this is likely to be the case.
Global demand for prime property rises
It is no secret that prime central London (PCL) property has long been a desirable asset for international property investors. In H2 2019, such buyers represented 55% of all PCL housing sold. This has remained the case despite the immediate obstacles posed by COVID-19.
In fact, estate agency Dexters recently reported that transaction numbers for PCL properties over £2 million were 85% higher between June and August 2020 than during the same period the previous year; with the majority of these buyers residing in Singapore, Hong Kong, the UAE, the US, India, and Italy.
This steep jump in global demand year-on-year is telling of an international property investor community that considers UK property to be a safe and secure asset in times of market uncertainty.
What are the benefits on offer?
To understand the factors underlying this boom in overseas demand for UK property, it is important to identify recent trends that provide said investors access to transactions with substantial discounts and opportunities for long-term capital growth.
The Stamp Duty Land Tax (SDLT) holiday, implemented on 8 July 2020, completely removes the SDLT tax on the first £500,000 of any property purchase across England and Northern Ireland, allowing for investors to save up to £15,000 in taxes. In response to the holiday announcement, the Nationwide July House Price Index recorded annual house price growth of 1.5%.
This is positive news and something the government is hoping will continue as part of the country’s post-pandemic economic recovery.
Additionally, the 2% SDLT surcharge for overseas buyers is currently due to be implemented in April 2021. If non-resident buyers act right now, during the SDLT holiday but before the implementation of the surcharge, they can save the added costs that will come into place next year.
And finally, the last decade shows the sheer potential for long-term growth investors can achieve through purchasing UK property. Due to demand constantly outstripping supply, despite government efforts to invest in new-build homes, the average value of a UK property between 2010 and 2019 rose by 33%.
Opportunities among the uncertainty
With the World Health Organisation warning that it may be two years before any sense of normality returns to the world, it seems certain that 2020’s global market uncertainty will continue for some.
As such, there is good reason to expect international demand for UK property to remain strong, further bolstering the market. If these overseas buyers are able to successfully navigate the current tax landscape associated with the foreign purchase of UK property, then I see no reason that this trend should not continue for the foreseeable future.
Whether it’s buy-to-let properties in the North of England or prime property in the British capital, there are plenty of property investment opportunities to be found across the UK real estate market. If the UK welcomes this investment and international buyers act quickly, then the resurgence of the UK property market will soon be assisting the country’s wider economic recovery.
Alpa Bhakta, CEO of Butterfield Mortgages Limited
Alpa Bhakta is the CEO of Butterfield Mortgages Limited, part of the Butterfield Group and a subsidiary of The Bank of N.T. Butterfield & Son Limited. Butterfield Mortgages Limited is a London-based prime property mortgage provider with a particular focus on the needs of UK and international HNWIs.
Butterfield Mortgages Limited is authorised and regulated by the Financial Conduct Authority (Financial Services Register Number: 119274). Registered office: Sun Court, 66-67 Cornhill, London, EC3V 3NB. Registered in England No. 338594.