While the pound remains weak and international political unrest continues, their enthusiasm is strengthened by London’s simplicity, transparency and efficiency.
UK: a good place to do property business
The UK tax regime still offers attractive exemptions to non-resident investors, making it an efficient country in which to place capital. There is a clear, trusted and well-established legal framework in place and experienced property professionals on hand to assist with day-to-day management, alleviating the stress of managing a property from overseas.
There are different types and qualities of building within each asset class and sub-market of the city, matching a variety of risk appetites. Opportunities vary from trophy assets in prime London to commercial properties in central London that produce a stable yield. Essentially investors are looking for properties that offer incremental upward recurrent income and potential for capital appreciation. The shortage of this type of stock in London continues to be a prominent theme in 2013.
According to Knight Frank, over 70% of the money invested in 2012 into the commercial office market came from overseas, as did 73% of the new-build residential sales. Chinese, Malaysian, Japanese, Middle Eastern and Russian investors, to name only a few, who are all competing against each other for the latest investment opportunity available in central London, are now beginning to approach vendors with attractive offers directly. As a result, more deals are being agreed off market, which has become a key trend. These cash-rich investors are not held back by the lack of funding available in the market.
While the preference will always be safe, long, income-returning prime property in the capital, the shortage of this type of stock is already driving overseas investors to broaden their horizons and move into the regions. Well-built properties let to strong covenant-strength tenants on long leases in provincial cities in the UK, are quickly being recognised as smart and forward-thinking investments across the globe.
Not all London-centric
Recent injections of international wealth into areas such as Manchester, Birmingham, Reading and Southampton are examples of this. Investors into these dynamic cities are able to purchase longer institutional leases with higher yields than in London, making them long-term investments and a secure place to store their money.
Another shift in the commercial real estate environment in recent years has been the increase of development projects, with many commercial buildings being bought by overseas investors for conversion into residential flats. Government plans to extend permitted development rights are set to be in place by spring 2013, which is likely to increase this trend even further.
Foreign investors continue to benefit from the UK’s tax regime, however careful planning and structured thought is needed before investing or redeveloping property to ensure that investors are maximising the benefits available to them.
The multi-million pound property acquisitions being transacted in London and the regional areas continue to attract heightened media attention, which is something private overseas investors are unable to avoid. This is one of the reasons why the majority of investors acquire stock via a special purpose vehicle, enabling privacy to be maintained.
The history of property in the UK shows its inherent strength as a lasting asset class. London, specifically as a global centre for finance and culture, remains an obvious choice for international investors. The challenge they face is deciding which type of asset to invest in to best suit their requirements, and then to actually find something available.
Ruby Dalal is an associate at Charles Russell
