As we enter into 2019, Brexit remains the biggest question for UK property investors — whether there will be a deal, no deal, or no Brexit.
The option of Remain seems off the cards, and despite the recent rejection of Theresa May’s deal by Parliament, we think that the risk of a no-deal is unlikely. Few MPs want such a drastic breakaway, and many will start to get antsy as the deadline fast approaches.
It is almost certain that some form of deal will be hammered out, at the very least to allow for a transition period after March 2019. This will allow time for free trade agreements to be worked out with the rest of Europe.
The UK housing market giant
The UK housing market as a whole soared to record highs in the past few years. Research by property firm Savills showed the total value of UK housing stock had increased by £190 bil to its highest level ever — a mind-boggling £7.29 trn.
“Our analysis demonstrates the scale of the housing market and underlines the importance of housing to the economies of London and the UK as a whole, both as an asset class and store of private wealth,” said Lawrence Bowles, residential research analyst at Savills.
Unlike the 2008 financial crisis, where market values remained relatively stagnant until 2013, the UK housing market continues to grow in the face of Brexit. Growth pushed up by 2.7% in 2018.
“It’s great that we’re seeing more housing delivery, but development will have to make up a much higher proportion of new housing value if we are to come anywhere near building the homes this country needs,” Mr Bowles added.
Right now England is facing its biggest housing shortfall ever, with a backlog of 4 million homes.
Compelling reasons to invest
Advisory firm Ernst and Young forecasts an upward trend for the UK’s GDP, predicting growth by 6.9% from 2019- 2022.
Spending power will also start to increase this year as earnings are expected to rise by as much as 3.0% while inflation is predicted to drop to 2.0%.
Once a deal has been struck, the British pound is expected to go up. Property firm Colliers International predicts a 5% to 10% appreciation in value, while global assets manager Aberdeen Standard Investments says the sterling might potentially climb by 15% from its current level within 3 months of a deal.
Recovery of the pound will slow inflation and lead to stronger income growth that will support prices. The high-end residential sector will benefit from greater certainty by foreign expats working in London and the preservation of the UK’s financial services sector.
Savills forecasts UK house prices to rise 14.8% from 2019-2023, although there will be significant regional variation.
Where in the UK should investors look to gain the most in 2019? The timeless advice is to look for cities with strong fundamentals, e.g. a thriving local economy and industry. Three UK cities in particular that we recommend investors to keep their eyes on this year are London, Manchester, and Birmingham.
London
Property in the capital now makes up a quarter of the total UK housing value. A decade ago, it was just a fifth of the domestic market.
The London market is now worth a stunning £1.77 trn, over four times the combined value of Birmingham, Manchester, Edinburgh, Glasgow, Cardiff, Bristol, Liverpool, and Sheffield — all cities which saw higher rates of price growth than the capital in 2018.
The city may have experienced a slowdown since the Referendum, but that has not deterred overseas investors. London was the top city in 2017 globally for cross-border office investment, ahead of New York, Frankfurt, Berlin and Paris.
Last year saw nearly one in five (18%) new-build homes in London being purchased by overseas investors, 61% of which hailed from Hong Kong, Singapore, Malaysia and China.
Property firm JLL expects a bounce back after Brexit. Adam Challis, head of residential research at JLL, says that values will nudge up next year before accelerating faster with a greater sense of job security.
“Once we have confirmation of a deal and a reasonable transition period, people will start to feel more confident and this will encourage homeowners and investors to buy again.”
JLL predicts that the average price of a new-build home in Zones 1 and 2 will jump 17.6% between Brexit and 2023, making central London property a good buy for investors right now.
House price growth will be driven by the escalating supply crisis within the capital. Housing starts are expected to remain around 20,000 units a year over the next three years, and begin to rise towards 25,000 a year by 2023. This falls a long way short of the Mayor of London’s target of 66,000 new homes per year.
Manchester
The housing market is booming in the UK’s ‘second city’. Greater Manchester’s population has surpassed 2.7 million, and is predicted to rise to almost 3 million by 2031, with the City of Manchester alone accounting for 36% of the growth.
The Government projected that if house-building efforts do not catch up with projected growth in households, there could potentially be 1,500 more families than homes in 2026 — and 9,400 more by 2037!
Anthony Stankard, from agents Reside on Deansgate, said: “People follow jobs, and the strength of Manchester and the city region is in its continued economic strength.
“The airport, together with Airport City and MediaCity are key factors, but underpinning it all we have the universities. The newly announced Faculty of Science (of Manchester Metropolitan University) alone will provide enough jobs on its own to fill a couple of residential towers.
“And what Manchester has – and what cannot be replicated – is an energy. And the demand we are seeing just keeps on going up.”
With the the new High Speed Rail (HS2) due for completion in 2026, Manchester will be eight minutes over an hour from the capital.
Data from Hometrack showed Manchester at the number one spot among all UK cities, with a price growth of 6.6% in the 12 months to November 2018.
Houses in the city are priced at an affordable average of £168,900, just over a third of London’s £481,800.
JLL predicts house prices in the city will go up by 14.5% from 2019-2022, whilst rental growth is expected to reach 13% over the same time period.
Birmingham
Birmingham’s position at the heart of the UK plays a major part in the city’s ever-growing attraction as a hotspot for business and manufacturing.
According to a study by consulting group PwC and think tank Demos, Birmingham is the fastest improving city in the country to live and work in. Falling unemployment and a wave of regeneration projects boosted the city to its place at the top.
A torrent of regeneration started in the city after it won the bid to host the 2022 Commonwealth Games, with developments such as Birmingham Smithfield, Arena Central, Paradise, and the Midlands Metro extension currently underway.
Birmingham also has the honour of being the youngest city in Europe. Out of a population of 1.1 million, nearly 46% is estimated to be under the age of 30.
The city’s youthfulness and strategic location have made it a hotbed for start-ups. The city consistently had the highest number of start-ups in the country outside of London since 2016.
Once the HS2 is complete, Birmingham will be a mere 49 minutes away from the capital.
Data from Hometrack showed Birmingham at second place among cities in England, with a price growth of 6.3% in the 12 months to November 2018.
Houses in the city are priced at an average of £163,600, which is slightly less but on par with Manchester.
JLL predicts house prices in the city to go up by 15% from 2019-2022, with rental growth expected to reach 13.5% over the same time period.
The British pound is set to rise quickly, which means property investors can get better returns by buying now. Don’t miss out! If you are looking for property in the cities of London, Manchester, Birmingham and more — give us a call at (+65) 3163 8343 (Singapore), 03-2162 2260 (Malaysia), or email us at info@csiprop.com!
If you would like to read more on property in the UK and Australia, check out our Investment Guide here.
Article by Ian Choong Edits by Vivienne Pal
Sources:
- https://www.bbc.com/news/business-39732816
- https://www.savills.co.uk/insight-and-opinion/savills-news/273857/uk-housing-stock-gains-%C2%A3190-billion-and-hits-a-record-%C2%A37.3-trillion-valuation
- https://www.savills.co.uk/insight-and-opinion/savills-news/170245-1/savills-forecasts-uk-residential-market-in-the-next-5-years
- https://www.hometrack.com/uk/insight/uk-cities-house-price-index/
- https://www.manchestereveningnews.co.uk/news/property/buying-investing-property-manchester-centre-14951935
- http://residential.jll.co.uk/insights/research/regional-residential-forecasts-2018
- http://residential.jll.co.uk/insights/research/residential-forecasts-west-midlands-report-2018
- https://www.theguardian.com/uk-news/2017/nov/07/birmingham-uk-city-oxford-reading-pwc-demos
