- Overall positive outlook across the UK, but central London growth subdued.
- Growth in the Northern cities due to governmental initiative and overall affordability amid high growth
- Student property remains a good investment option given structural under-supply
The year started on a bleak note, no thanks to the current global economic climate. On the property front, the beginning of 2016 in the UK was headlined by policies to be imposed by the Chancellor on home-owners and landlords,such as future tax and stamp duty increases, and the abolition of mortgage income relief in 2017 – all this on top of predictions of a rise in Bank Rates, prompting doomsayers to predict an extreme downturn in the property market with projections stretching to 2021.
Read how the rates increase affects the Malaysian investor here
But, let’s not get ahead of ourselves. Forecasts are essential in helping the investor strategize, but it is crucial to take a closer look and weigh the predictions against the facts and what we already know:
Raising taxes and other rates are usually measures used by the government to protect the welfare of its house-buying citizens by preventing skyrocketing property prices and overarching speculation resulting from uncontrolled property-buying by wealthy local and foreign investors. The CGT in Singapore and Hong Kong and the RPGT in Malaysia, as well as FIRB taxes and stamp duty hike in Australia are a good example. We’re not saying you should ignore it; we’re just saying it’s not a deal-breaker.
To illustrate, a survey by the Council of Mortgage Lenders found that despite the negative outlook, landlords are confident that they will be able to absorb the impact of tax changes while over 80% are confident they won’t have to raise rents in order to cope.
As for all that talk on Bank Rate increases: the trend for pushing forward forecasts for the rate rise into the future has been going on since rates were cut in 2009; the prediction keeps getting pushed back in the end.
Currently, Bank Rates stand at 0.5%; the prediction for a rise was set for Dec 2016 or Jan 2017 following the first rate rise in the US in 9 years, last December. But with the global economic gloom of 2016 and comments of the Monetary Policy Committee (MPC) along with dramatic market movements, money markets imply that the first increase is poised for Aug 2019. Bank of England chief economist Andy Haldane said last year that the case for UK raising interest rates was “some way from being made” and that negative rates may still be needed.
Implications on UK House Prices in 2016: Focus on the Northern cities and student housing
The outlook for 2016 is positive.
Why? The fact remains that housing demand still outweighs supply in the UK, in general. This will, in the long run, continue to drive house prices up, says Nationwide chief economist Robert Gardner in his forecast.
A point to note, however, is that most commentators agree that price growth will be higher outside London than in its centre. The Land Registry reports that average house prices in London breached the £500,000 barrier for the first time in Oct 2015, and appears to have kept going. With that, Capital Economics and Savills have predicted that growth in London will flatline this year. Savills further adds that commuter towns will continue to offer good medium term price growth compared to more expensive London locations, especially where travel times are shortened by rail improvements (see implications of Crossrail on UK property prices here). Additionally, good second-hand stock in centrally-located areas of regional cities favoured by graduates are likely to deliver higher yields than their London counterparts, without rental income being reliant on welfare payments. Improving regional employment markets should underpin tenant demand.
Rics has forecast that East Anglia will be at the forefront of the UK market with growth of 8%, while Rightmove expects sellers in outer London to ask 6% more for their properties, but suggests some buyers might give up on the capital completely. “We think there might be a flow of people moving their money out of London,” says Rightmove housing analyst Sam Mitchell. “We think this might lead to stronger growth in cities like Manchester, Leeds and Liverpool.”
Read more on Why Manchester is the place to invest in, here
Indeed, a lot of attention has been focused on the northern cities (which also includes Sheffield) as housing markets started picking up. CBRE reports that growth outside London will be spurred by the Chancellor’s Northern Powerhouse initiative. Richard Sexton, director of the chartered surveyor e.surv, also advises a look further north for housing hotspots and that the regional property market will enjoy a real boost in 2016.
Student housing will experience a continued strong demand from investors but with significant supply side challenges in London and key student towns (read: definite rental income potential and fantastic yield for investors), says CBRE. The demand for purpose built student schemes is poised to become more acute as planning constraints may drag supply due to legislation. Again, this means consistent income with good yields in the bag for the investor.
Understand more about the viability of investing in UK student property here
Overall, affordability constraints have led to big increases in the number of households in the private rental sector, from just over 2 million in 2001, to 5.4 million now. The sector makes up 20% of all households. Most of the stock is held by private individual investors, with only 2-3% held by institutions and professionally managed companies. The rental sector is expected to grow further, to 7.2 million by 2025.
In conclusion, the UK property market will continue to remain strong in the face of measures taken by the government.
CSI Properties (Cornerstone International) proudly markets international investment property with high yields at low risk. Our portfolio comprises residential and purpose-built student property in cities across the United Kingdom (London, Luton, Manchester, Liverpool, Newcastle, York, Glasgow, Scotland; Sheffield, etc); Australia (Melbourne, Perth, Brisbane) and Thailand (Bangkok). Our projects are concentrated in high-growth areas with great educational, infrastructural and job growth potentials. We aspire to make a difference in the lives of our clients by helping them achieve their investment goals through strong market research backed by third party experts and due diligence.
Disclaimer: Cornerstone International does not provide tax & legal advice and accepts no liability. Readers are encouraged to consult a qualified tax or legal advisor for a thorough review.
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