The Brexit result took most commentators and analysts by surprise and, we must admit, us as well. The bookmakers were expecting the Remain campaign to prevail, but the underlying discontent over issues such as immigration resulted in a vote that is going to impact the socio-economic structure of the UK in many ways. Does this mean there is an opportunity for overseas property investors? Some of the leading estate agents came out with headlines suggesting that the fall in Sterling meant people should rush in and buy now. Most investors are far too cautious to follow that advice. We believe that patience in the short term is certainly a virtue, although hesitancy can result in missed opportunities.
It is fair to say that price growth had already stalled in most parts of London and the exhibitions held in Asia were seeing far fewer sales than in 2015. Developers had pushed property prices too far and the market needed to take a breather, before, most people assumed, it surged forward again. Fortunately or unfortunately (depending on whether you are potential home buyer or an investor) the upward trend in prices is over for a while. Few are predicting a collapse in price and we agree with the consensus that stagnation or a mild correction is likely.
Going forward, interest rates should remain low as the government tries to keep the economy ticking along, but whether mortgages are readily available at the current rates is open to debate. Some believe that lending will be more restricted and expensive as various sectors compete for funds. They may have a valid point, which means that if you are an off-plan buyer with a purchase to complete in the next two years you may have difficulty in securing a mortgage. We expect a large number of such properties in central London to come on the market which would force prices down. If you are an off-plan investor, our advice is to consider your completion strategy sooner rather than later. If there is a stampede for the limited finance that is available, you don’t want to be at the back of herd.
Rental demand in London is likely to fall as some institutions move their operations elsewhere. In most cases this simply means there will only be three applicants for every property instead of the current five. Given the ongoing shortage and the sheer number of people looking for accommodation, particularly affordable accommodation, an appreciable fall in rental yields is not going to happen. However, we can certainly rule out rental increases in the short term.
As for the rest of the UK, the warnings of dramatic house price falls from Remain campaigners should not come to pass. The market is fuelled by domestic, not international demand and buyers are not directly impacted by the value of Sterling. People still need houses to live in (of which there is a huge shortage) and there is not going to be mass unemployment overnight with interest rates increasingly dramatically. If you own a property that is rented and it is performing well, sit tight and enjoy the rental income. It will be a sound investment over the medium to long term.
Of course, opinions differ and some people will see any predictions as crystal ball gazing. The reality is that no-one really knows what will happen over the short to medium term. We have been operating in this market for over twenty years and are confident that over the long term prices will inevitably rise. In the meantime there may be opportunities for astute investors to benefit.
So where are the opportunities?
Downsizing will continue and if anything, increase. Tenants will not be inclined to pay higher rents with the uncertainty over job security in the financial sector etc. and will sacrifice space for affordability and convenience. HMOs (House in Multiple Occupancy) and smaller properties which show secure and above average rental incomes will become even more popular. With price growth curtailed, many investors will place greater emphasis on income streams and these properties should perform well.
Buying from semi distressed off-plan purchasers should be possible over the short term, starting sooner rather than later. With the ability to complete such a purchase, buyers will be able to make discounted offers and acquire properties which over the medium term will be seen as ‘bargains’.
For investors trying to take advantage of a weak currency, or buy at the bottom of the market, timing is the key. Determining when Sterling and property prices have reached their nadir will be difficult to predict. Our advice is that if the right opportunity that meets your investment criteria comes along then take advantage of it. Only investment gurus and clairvoyants can pick the bottom of any market.
Finally, despite pre Brexit warnings to the contrary, London will remain a major financial center and will continue to attract foreign workers and investment. There is no need to rush in, but ‘fortune favours the brave’ so don’t sit on the sidelines too long. London property has always performed, and it will in the future if you adopt the ‘five rights of property investment’. Buy the right property in the right location for the right price at the right time through the right adviser.
