It's well recorded that London's prime property markets have experienced extreme inflation due to heightened interest from some of the world's richest investors. As a result, investor sentiment has shifted to the UK's regional cities where buying has been less frenzied and property prices have increased at more modest rates.
Properties at the high-end have been snapped up by ultra-rich foreign investors mainly from Russia, China and the Gulf States, with investment surpassing £100bn in 2013.
85% of prime London property sales to foreign investors
Mega-rich emirate Qatar has poured the most capital into London, buying iconic buildings such as Harrods, the Shard and capital's most exclusive and expensive address, No.1 Hyde Park – a snip at £140m.
While it's fascinating to read about the investments of the ϋber-rich, the main investment action has shifted to regional cities as investors seek better rates of return for their capital.
The latest trend is for 'hands-off' income-generating investments such as managed residential property, student accommodation and serviced commercial and retail spaces that allow foreign investors the opportunity of buying in to the UK's top asset class without the need to visit the development or consider occupancy.
Increasing appetite for hands-off investments in UK's regional cities
The completely hands-off nature allows investors to budget efficiently and maximise returns through having their investment managed in their absence. The management of such investment properties including rental collection, repairs or maintenance is handled completely by professional local companies without the need to call the owner in what could be the middle of their night!
On a slightly smaller scale than London, Regional UK property has been increasingly attracting foreign investment. Two years ago 85% of all prime London property sales were to foreigners with the majority purchasing solely as investments and not for the purpose of occupation. 2014 has seen a decline in this percentage as more investors look beyond the prime markets seeking greater value for money.
UK tax climate attractive to foreign investors
The UK's tax climate has become attractive to non-resident investors in local markets, particularly in comparison with their own country's tax framework, for example France and Spain where exceptionally austere fiscal measures have been implemented to stimulate economic recovery.
Managed or serviced property as an asset class has performed exponentially since 2012, driven by a consistent appetite for further education from both domestic and international students and a rising demand from young professionals unable to get on the property ladder. The 2014/15 academic year saw a record number of applications, suggesting continuing and rising demand over the next few years. This year also saw record numbers of people living in private rented accommodation, rising from 2.2million in 2002/03 to nearly 3.9million last year.
Demand for Student Accommodation set to Rise
Education is the UK's seventh largest export industry which according to analysis is expected to draw revenues of up to £12bn annually in tuition fees alone to the UK by 2020.
University cities such as Sheffield, Leeds, Sunderland and Leicester currently have a critical undersupply of student rooms with as little as 13% of students having access to purpose-built accommodation.
This ensures high occupancy rates and pushes up rents without the investor having to get involved in the arbitrary process of managing the property. Despite this, investors do retain control of their investment and there are usually flexible exit strategies in place.
High-quality managed developments attracting most investment
Top-quality managed developments provide the highest level of investor security with potential for double-digit yields and underlying capital appreciation.
The UK's regional property market has experienced price rises at more modest levels to those seen in London, meaning there is still value to be found, particularly in cities where demand outpaces supply.
Not only high yields but long-term guaranteed income
With lower initial purchase levels than for a property in London, rental yields are higher and when long guaranteed rental income periods are in place, exiting the investment is simplified by the extremely attractive conditions at resale. With an existing and operating development, there is even more incentive for investment as it provides both immediate and proven income.
When considering a hands-off investment, there are other opportunities aside from student accommodation such as mixed-use residential units, apart-hotels, self-storage units, car parks and retail units.
The most attractive aspect of hands-off investments is the fact that entry is accessible for most investors and for those with a little more investment capital to hand a diverse property portfolio consisting of five or more asset classes is easily achievable for less than £500,000.
- Monday 08 September 2014