Invest In London Property
Advanced Guide to Property Investment Opportunities in The United Kingdom for Singaporeans
Singapore is among one of the top ten leading countries that own property’s all across the United Kingdom, for Singaporeans the U.K property market is a gold mine especially London property market which has witnessed a flurry of overseas investment.
The depreciation of the British pound against major world currencies has boosted the attractiveness of its real estate sector to foreign investors; its robust and vibrant market yields higher returns compared to other major global cities worldwide. In this article, we are going to discuss in detail all the aspects pertaining to the UK property market and opportunities enabling you to make an informed and wise decision as an investor.
United Kingdom Gross Domestic Product
The United Kingdom is a highly developed and market-oriented economy with a total population of 66,706,175. The Kingdom comprises of Northern Ireland, England, Scotland, and Wales, it’s the fifth largest economy in the world whose GDP makeup 5% of the total world’s GDP. As of 2018, its GDP was $3.033 trillion
The major driving factor is the service sector which contributes up to 80% of the GDP. The financial industry, aerospace sector, and pharmaceuticals are amongst one of the largest in the world contributing a huge portion of the total GDP.
At the start of the year, the British economy was sluggish which partly attributed to weather conditions. The economy is projected to grow 1.3% in 2018 a slight drop compared to its previous years which was partly attributed to reduced real consumer spending and uncertainty on Brexit negotiations.
Britain is still one of the strongest economies as a result of its competitive pound, inbound tourism and overall growth in UK exports. On the expenditure side, household consumption rose by 0.4% in the 2nd quarter signaling a slowdown due to the reduction of energy use as a result of adverse weather at the beginning of the year while gross fixed capital formation reduced by 0.5% due to declining business investment.
On the production side, service output rose by 0.6% in the 2nd quarter marking the strongest growth since 2016. Industrial production declined by 0.8%. London over the years has grown at a faster rate than UK economy, but in 2018 it’s expected to grow slightly above the UK economy rate with limited variations.
Its predicted that there would be a meager growth rate going forward as a result of Brexit uncertainties which continues to have adverse effects on fixed investment but a rise in household consumer demand will provide some much-needed support to the overall economy. To counter slow growth, the Government plans on increased spending on education and training low-skilled workers enhancing inclusiveness and increase productivity.
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KEY INDUSTRIAL SECTORS
In 2017 inbound tourism set an all-time record for both spend and visits, during the same period there were 39.2 million tourists a 4.3% from 2016 with total spending of about £24.5 billion marking an 8.7% increase on 2016 making it one of the most valuable export sectors.
As for 2018, the trend is expected to remain the same with forecasted growth to 40.9 million visits increased visitor spending to £26.3 billion translating to an increase of 4.4% and 7.1% respectively. Tourism contributes 213.8 billion British pounds just under 10% while creating job opportunities for almost 3.3 million.
London is one of the largest financial centers; as a result business travel accounts is a key factor in the travel and tourism industry as more and more investors look to tap into the vibrant United Kingdom economy. For Singaporeans looking to invest in UK property investment take advantage of business travel to assess the real estate sector in the country.
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Reasons to invest in the United Kingdom
The United Kingdom is strategically located providing easier access to the entire region. With its integrated transportation system providing investors with ease of movement both internally while in the country and also international travel. Most global companies locate their European headquarters in the U.K compared to other countries.
Ease of Doing Business
The UK is ranked as one of the easiest places to start up a business or buy property compared to other European countries. Efficiency is key there is no bureaucracy and red tapes as you can register your company within 24 hours.
For foreigners, the UK has a competitive tax environment that is favorable to investors. The corporate tax stands at 28% the lowest in Europe, a personal tax bond at 40% with no withholding tax on dividends making the country an attractive location for withholding companies.
The UK is world-renowned for providing investors with a highly skilled and professional labor force coupled with its low Rigidity Employment Index making it one of the easiest countries to hire workers.
Stable political and Regulatory environment
The UK is rated very highly on the Transparency International index attaining a higher rating than most developed countries making it one of the least corrupt countries while also implementing a consultative approach with all stakeholders creating a conducive business environment.
United Kingdom Real Estate Sector
Despite political and economic uncertainties over the past 12 month UK property market has continued to grow with property index projected to be just over 10%. Average rents for main real estate sector had a positive growth partly due to increased supply and demand dynamics.
Demand for space has also risen staying above 5 and 10-year average; property prices have slowed down as a result of Brexit negotiations with construction levels also at a standstill due to macro uncertainties.
2018 has witnessed a growing demand for residential properties as first time buyers with lending for buy-to-let in decline with Council of Mortgage Lenders expecting this figures to fall to 80,000. This decline has been caused by stringent lending criteria and increased taxation.
Vacancy rates for industrial and office sectors have hit an all-time low with especially those in prime areas that are 2% less than 2% of the stock. However, in London up-take rate is predicted to increase as a result of the burgeoning technology sector sharply.
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In 2018 after uncertainties, a steady recovery period is expected to take between 18-24 month offering opportunities to veteran and first-time investors to tap into the London real estate and the wider UK market.
In central London, office developments have peaked recovering from previous months by n 9% to 12.6 million square feet. Rental growth has surged due to an increased uptake in space shifting the favor back to landlords.
Technology companies have flocked to London increasing the demand for commercial properties reigniting developers interest in building new commercial properties; however, due to Brexit fears, investors are keeping a keen eye on the political front to see how things unfold.
Developers have earmarked in developing senior housing, and nursing properties in order to meet the growing demand as 1 out of 4 UK citizen are above 60. Homeowners aged 66 and above accounted for 43,000 property transactions in the first quarter of 2018, a 46% increase compared to 2017
In London 38,200 Energy Performance Certificates were issued marking a slight increase of 1% from 2017. EPC’s are required for all new constructions signaling that approximately 38,000 new units were added into London real estate.
Statistics from Home Builders Federation indicate that 63,700 units were approved for construction an 18% increase from the previous year. Its projected that supply for industrial and office properties will slightly remain stagnant due to Brexit fears as more and more multi-nationals plan on shifting their headquarters to other European cities.
The demand for residential units continue to decline, the number of sales made by real estate agents fell by 5.4% from the previous year. The declining growth is as a result of developers sitting on a land of more than 130,000 homes that have never been constructed.
Over the same period, there has been an increase in transaction volumes that stands at £60 billion underlining the competitiveness of the UK property marketing showing investor confidence is still high despite fears of the leaving the European Union.
Retail sector values continue to decline as more restaurants and retailers fall into insolvency or enter into voluntary company arrangements to reduce their rent cost. Industrial sector rental growth increased by 5% pa as a result of increased demand for online sales.
Its predicted that house price in the UK will grow by 3% and will remain relatively stable throughout 2025. As of 2018, the average house price stood at £226,906 a 3.9% increase from 2018. The rise in prices is partly attributed to a lack of new housing supply in the market.
In 2017 the average UK house price inflation stayed steady, ranging between 4.5% and 5%. However, there has been an occurrence of weakening price growth, with annual house price inflation dropping to 3.9% in the year to April 2018.
It’s expected reducing housing activity will negatively impact house price growth; in London, the house price index is the lowest than in any other region in the United Kingdom.
Property taxes in the United Kingdom
When purchasing a property as a foreigner, you are mandated by the law to pay 5% stamp duty land tax if you are a first-time buyer and the property value does not exceed £500,000. For those purchasing second properties they additional stamp duty rates of 3% at each level.
For properties that are rented out, non-residents are required to pay 20% income tax on their rental income. From April 2020 non-UK resident firms will pay a corporation tax on their rental incomes and the rate will be 17%
When selling your property, there is a payable capital gains tax of 18%for individuals depending on your total incomes and gains. For trustees and companies, the rate stands at both 28% and 20% respectively.
In the event that you die, there will be a 40% inheritance tax with total debt accrued by the property will be deducted from this amount.
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Buying property by foreigners
Buying property in the United Kingdom is an easy process as there are no separate rules for both foreigners and residents. The steps are:
- Use a real estate agent who will examine your specification and requirements and recommend a property that will suit you
- Negotiate an offer with the developer according to the current market conditions
- Foreigners prefer off plan purchases with a reservation fee of 1,000 GBP and 3.0 – 3.5% down payment to be paid within 28 days. There are a 3.0 – 3.5% installments payable each month until the balance is cleared.
- Once the buying price and payment plan have been agreed to appoint a solicitor who will deal with all the legal paperwork.
Acquiring loans for foreigners
Most banks offer loans to foreigners, but you are required to make a 35% deposit of the total property value. For Sterling mortgages, there is a wide variety of mortgage products that tailor for your ability to repay the loan.
For foreigners, in order to get a mortgage, you must meet the following criteria
- Finances- for those who are self-employed you are required to provide 3 years of income
- For those intending to rent out the property outline how much you will charge as rental amount
- Prove your existing finances showing you can afford the property
- Period- the mortgage loan will run for 25 years or till you reach your retirement age.
The top property’s in the UK
London project- Royal Wharf
The London property is closely located close to The River Thames; the project will comprise of both apartments for sale and commercial development. The project is a joint venture between Ballymore group and Oxley Holdings that will comprise 3,385 residential units and 10,000 square meters of commercial and retail space.
The project is ongoing, and as of 2018 phase, 1 and 2A buildings situated on the eastern side had been completed while Phase 2B and 3 on the western side is slated for completion in 2020.
Manchester Project- Ancoats gardens
Located at the heart of Manchester City center the residential development has a sleek and elegant design that fully caters for your luxurious lifestyle. The property for sale in sale Manchester UK has155 high-end units comprising of a mix of 1-3 bedroom apartments with 27 parking spaces.
The property has world class facilities coupled with its technological advancement making it an energy-efficient development. For investors expect gross yields of 7%, the project development is expected to be completed in the 4th quarter of 2020.
Liverpool project- Epics Hotel
The property is developed by Elliot group comprising of 16 story high that has 306 hotel apartments and 50 residential apartments. The Liverpool property is right at the heart of the city center providing access to virtually almost everything.
The hotel and condos residence has world-class facilities with breathtaking views of the city skyline. The project is expected to be completed in Q4 in 2020.