If you believed everything you read it would seem that 2016 was a bottomless pit that would swallow us all. A fate from which there was no escape, with widely unexpected political events having taken place across the globe, causing mass uncertainty and shattering confidence in both the mainstream media and governments alike. From the much publicised EU Referendum and ‘Brexit’ vote in the UK, to the recent presidential election in the United States that saw Donald Trump win the race to the White House in an unprecedented victory. 2016 delivered plenty of talking points and gave property markets and property investors all over the world much to ponder. Here we cast an eye over some of the key talking points and explore what 2017 has in store for international real estate markets and more specifically the UK buy to let investment market.
The EU Referendum: The Vote To Brexit
Where else could we possibly begin but the EU Referendum that was held in the UK back in June. Property markets in 2016 were dominated by Britain’s vote to Brexit and rightly so. A widely unexpected outcome brought with it may questions and an uncertain future. As CBRE’s UK Chairman Stephen Hubbard put it, “driving down the post-referendum road is like doing 80mph on a motorway in thick fog – with little prospect of the fog lifting”.
Although the political fog may not yet have lifted due to the impending Article 50 that is yet to be triggered, the dust has certainly settled somewhat across many real estate markets with most showing great resilience, adopting a ‘business as usual’ approach. There was uncertainty in the immediate aftermath of the referendum resulting in dramatic and perhaps exaggerated fears in some corners of the market with the UK Real Estate Index plunging 22% in just two days and the gradual decline in the value of the British Pound Sterling, however the UK in the past 6 months has proven itself to be the same real estate investment haven to which both foreign and domestic investors have grown accustomed. Capital values fell by 2.8% in July, but have since stabilised and in October even grew by 0.1%, according to the MSCI IPD All Property Monthly Index.
As the London property bubble continues to deflate, and with the private rented sector in the UK projected to grow even further throughout 2017, a post-Brexit Britain is beginning to look an attractive proposition for foreign investors. Cities like Manchester, currently the strongest UK property market outside of London, and Liverpool, the second largest regional economy in the North of England, are both performing particularly well. Foreign investors in particular are flocking to the regions to capitalise on the weak Pound and rental yields exceeding 6% and we believe this is a trend that is set to continue.
Rising Levels Of Immigration: The Pressures On UK Housing
Rising levels of immigration into the UK were one of the key drivers for those making the argument to leave the EU in the Brexit vote. The year up to June 2016 saw immigration to the UK reach 650,000, the highest level ever recorded. Pressure on the nation’s existing housing stock is increasing with few signs that this fundamental undersupply problem will be successfully addressed in the near future.
In addition to the issues regarding immigration, the number of first time buyers and young adults struggling to get onto the property ladder are at their highest levels in the UK since 1996, with almost a third of 20-34 year olds still living with their family or parents. With the lack of affordable housing available and rising prices, many millennials and the young adults of today are opting for rented accommodation rather than prioritising the purchase of their own home. The demand for rented accommodation in the UK is rising, resulting in more and more landlords and investors snapping up buy to let properties, which in turn have caused the government to intervene in an attempt to curb buy to let activity and lending through hikes in stamp duty and additional taxes coupled with tighter lending restrictions.
The governments stated aim is to build 200,000 new homes each year up until 2020. According to the National Housing Federation however, the governments annual pledge is still around 50,000 fewer homes than are required each year to keep pace with demand. What’s more, with construction starting on only 142,890 new homes last year, building levels remain significantly short of what’s required creating a ‘supply-gap’ – which is one of the fundamental drivers of rising yields and capital growth and looks set to be as significant as ever in 2017 and beyond.
The US Election: The Impact Of Donald Trump
Some have suggested that Donald Trump’s election to the White House might spell good news for the UK property market, but it is too early to tell. The USA has long been an investment hotspot for real estate investors all over the world – providing excellent value for money and strong rental yields available across the country with opportunities aplenty. The EU Referendum and the vote to Brexit certainly took many by surprise, but Donald Trump’s victory in the US presidential election was equally if not more surprising, plunging investors and real estate markets into further uncertainty. The US however remains an attractive proposition with the property market continuing to build momentum despite political uncertainty. Prices across many States continue to rise, whilst rental yields are particularly impressive with annual returns of 10% and upwards readily available in popular cities such as Detroit, Baltimore and Philadelphia where low home prices coupled with increased migration and rental demand provide investors with some of the hottest property investment opportunities and turnkey properties for sale in the country.
From the UK buy to let investment perspective, with the Pound recently hitting a three-week high against the US Dollar, we expect to continue to see an influx of international investors and buyers on the lookout for historically safe haven markets like London, particularly with prices in the capital falling. Rightmove have recently suggested that asking prices across the capital will be reduced by an average of 5% with some boroughs experiencing double-digit reductions in the average asking price such as Camden, where property prices were up to 17.7% lower in December 2016 than they were in December 2015. The UK capital has long been a stable market with sky-high property demand from both international and domestic buyers.
Whether you are considering investing in the UK or the USA our advice would be the same. A wise investment strategy for investors would be to consider a hold period of 5-10 years so that any further political shocks such as Brexit and Donald Trump’s election can be outlived and the effect of which can be mitigated. After all, there is an element of risk with all forms of investment, it is a case of performing the necessary due diligence and mitigating that risk. Investing in property is and always will be one of the surest and safest ways to build wealth. Buy to let investment in 2017 will be no different.