What in the UK Economy Attracts Foreign Investors?
By Tyler Weiss
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There are specific reasons that foreign investors are attracted to the UK economy.
Financial instability in the Eurozone has driven an influx of European and other foreign investors to the UK. Buying a second home in London is a common tactic.
A handful of cities around the world would like to lay claim to being the centre of the known universe. New York City has long positioned itself as such, while the emergence of the Chinese economy might give either Hong Kong or Beijing that title. Abu Dhabi, Kuala Lumpur or Singapore might make similar claims for legitimate reasons – and truth be told, qualifying criteria for the title varies considerably between individuals. But if interest in owning property somewhere is any indication, a 2012 survey by the real estate agency Cluttons (in partnership with VPC Asia Pacific, a consulting firm) found that worldwide, 57 percent of wealthy investors identified London as their top target market for property purchases.
It’s more than an aspiration. Low interest rates in Asian currencies, which have appreciated well against the British pound and American dollar, have helped many buyers to purchase properties in Kensington & Chelsea as well as other desirable districts. Many buyers are purchasing residences for their children who attend English universities, as they are averse to paying rent on housing for even just a few years when they might be able to achieve capital growth from such an investment. Also, when non-residents realise capital gains on a UK asset they are not subject to the country’s capital gains tax (profits derived from rental properties, however, are subject to taxation).
The Eurozone crisis is widely attributed for leading to the investment in residential property in the UK by non-Brits. The head of residential research at property agent Knight Frank told a blogger in 2012, “The more instability you get in the Eurozone, the more the London property market benefits.” Indeed, Spanish, Portuguese and Italian buyers of English properties have jumped by two and three digit percentages in the past two years. Greek buyers, too, from old wealthy families, are investing in rental properties as well as for their own family members.
This seems to be a clear indication that staying out of the Eurozone has been a plus for the real estate industry and for owners of property. It does not, however, change the dynamic for British citizens who find housing difficult to afford. The financial crises of the past several years in combination with a dearth of home building have failed to provide adequate housing stock for middle class buyers. Land investment is shifting toward building the infrastructure and achieve local planning commission approvals for the conversion of agricultural property to housing, either for sale or to-let.
Whether foreign or UK-based, land investors and home purchasers should speak with an independent financial advisor before buying any property, developed, raw or strategic land. The investment needs to fit an individual’s overall portfolio needs and expectations.
Even just a few years when they might be able to achieve capital growth from such an investment. An independent financial advisor before buying any property, developed, raw or strategic land.