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UK Housing and the Brexit Effect

The clock is ticking to the deadline for Britain’s forthcoming exit from the European Union on March 29 next year.

Prime Minister Theresa May has been able to negotiate with European leaders a draft agreement for Brexit. But, she now faces the challenge of getting it through Parliament. Not all of Britain is happy with the terms proposed, and some are campaigning for the Prime Minister to push for better terms. However, senior figures in Brussels have expressed that it is unlikely that the UK will get a better deal than the one currently on the table.

Britain’s leaders race against time to determine whether the UK leaves the Union with or without a deal. What does a deal, or no-deal mean for the future of property investment in the UK?

 

Strong fundamentals keep the market afloat

Right after the referendum results came out, many had predicted a downturn in the market with all the uncertainty about Britain’s future. Even so, we held fast to a positive outlook for the market due to the sector’s strong fundamentals. That there will be challenges, we have no doubt, but we remain steadfast in our belief that  the UK will recover. More of that here.

The UK property market reacted adversely to the EU Referendum, but its rebound defied expectations. Data from market analyst Hometrack show that the market had experienced an overall period of growth after the referendum, with the cities of Manchester, Birmingham and Liverpool registering 9.7%, 9.6% and 8.3%, respectively, since March 2017. 

As a whole, the UK gained 5.3% during the same time period, with London’s 0.2% an unsurprising drag on average growth.

What’s worth reiterating is that the UK property market continues to grow despite concerns about Brexit. That, amid the negativity and naysaying that has been circulating around the impending Brexit, is a growing number of experts that understand that the UK housing market is not propped solely by UK’s exit from the European Union.

Real estate firm Colliers International identifies the main drivers of UK residential property as long-term demographic pressure, household formation rates and government housing policy. The firm pointed out that house demand and prices are not so much affected by Brexit as they are by stamp duty, help-to-buy and other domestic policy changes.

David Hollingworth, of brokers L&C, said that any impact from Brexit will be short-lived. “The fundamentals that have driven house price growth remain the same, namely the limited supply of property and low interest rates,” he said.

These two factors are unlikely to change anytime soon.

Industry analyst Ray Boulger, from broker Jon Charcol added that “the vast majority of people move for reasons completely unrelated to Brexit and so transactions won’t fall much.”

 

Property in the capital

London may have experienced a slowdown since the referendum, but property firm JLL expects a bounce-back after Brexit. The firm predicts that the average price of a new-build home in Zones 1 and 2 is expected to jump 17.6% between Brexit and 2023.

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.”

House price growth is also being driven by the escalating supply crisis within the capital. Housing starts will remain around 20,000 units a year over the next three years, and begin to rise towards 25,000 a year by 2023, the study predicts. This falls a long way short of the Mayor of London’s target of 66,000 new homes per year.

 

UK’s economy to rebound

Positive economic indicators underpin the optimistic housing outlook. Advisory firm Ernst and Young forecasts an upwards trend for GDP, to grow by 1.4% next year, followed by 1.7% in 2020, 1.8% in 2021 and 2.0% in 2022. Next year, spending power will also start to increase as earnings are expected to rise by as much as 3.0% while inflation is predicted to drop to 2.0%.

Predictions for future earnings and inflation in the UK (Ernst & Young)

Once a deal is set in stone, we should see a partial recovery in the value of the British pound. Colliers predicts a 5% to 10% appreciation in value, affirming that now is the right time to get in to the market while the pound is still weak.

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.

 

A worst-case scenario: Hard Brexit

Even in the event that a deadlock happens and no trade deal is reached, the weakening of the pound will lead to greater interest in the high-end residential sector by overseas investors looking for safe haven investments despite less accommodating tax and regulatory relief.

Mortgage rates could stay low for longer if that happens. Previously the Bank of England cut interest rates to support the economy after the referendum. Mr Hollingworth says that this would mean “an even more prolonged period of low interest rates which should help to maintain affordability for mortgage borrowers.”

There is increasing domestic pressure for tax and regulatory reform to support the housing market given the role that housing and the ‘wealth effect’ plays in supporting household spending – a mainstay of the UK economy.

A new round of housing policies and tax adjustments would be expected after the next general election post-Brexit. In the long run, the economic weakness resulting from a hard Brexit will be compensated by new reforms targeting the housing market in general.

 

Conclusion

The strong fundamentals of the UK property market will prove its resilience to Brexit. In the long term, investors can bank on the market to continue to provide good returns. Weakness in the British pound right now confirms a window of opportunity for investors to get in before the value of sterling starts to rise again.

CSI Prop recommends investment in the regional cities, where rapid expansion and development spurs a strong growth in the property markets.

By Ian Choong
Edited by Vivienne Pal

Sources:

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UK Property Investment Beyond Brexit

In less than a year, the UK  will officially exit the EU. Here is an overview of the Brexit effect on the UK property market.

Recently, popular actor Sir Patrick Stewart joined Members of Parliament and business leaders in London for the launch of a campaign called The People’s Vote. The campaign calls for a second Brexit vote, and drew some 1,200 people, including representatives from all of Britain’s major parties.

The actor, who played Professor X in X-Men, and Captain Jean-Luc Picard in Star Trek: The Next Generation, had earlier said that both his iconic X-Men and Star Trek characters would have backed Remain. This provoked a retort from Boris Johnson, the British Foreign Secretary. Mr Johnson drew upon Star Trek’s famous line, saying that Brexit will enable the UK to “boldly go” to areas it has neglected in recent years as it seeks trade deals.

On 29 March 2019, the UK will cease to be part of the EU as per the terms of Article 50. Taking into consideration the time needed for ratification by both the EU and UK, negotiations need to be complete by the end of 2018, or both parties risk a ‘cliff edge’ scenario where ties are suddenly severed with no arrangement as to how to move forward outside World Trade Organization (WTO) rules.

The UK has long been a global superpower with London as the world’s financial, education and cultural centre — even before it became a member of the EU.

Brexit and the property landscape

The UK has long been a global superpower with London as the world’s financial, education and cultural centre, even before it became a member of the EU.

Our position has always been that there will, undeniably, be risks and opportunities. And while uncertainty is bound to rock the housing and economic market, we are positive that the UK will adapt to changes caused by Brexit. The slowdown in the housing market is likely a short-term one as the lack of housing supply in the UK will not change overnight, thus there will continue to be opportunities for property investors.

CBRE, in its Brexit Guide for Real Estate Decision Makers released last month (March 2018), echoes the sentiment and concludes that Brexit is not likely to have a significant impact on the property market.

The British Prime Minister has said on many occasions that she would rather that no deal be made (in negotiations with the EU), than a bad one. CBRE calculates the probability of a no-deal Brexit scenario at around 25%. A no-deal scenario would mean the UK leaving on WTO rules, rather than continued preferential market access. Such an outcome could be damaging for the short-term confidence in the UK economy, especially if the UK is not well prepared.

What is significant for the real estate market are the current negotiations on future trade and migration arrangements.

Migration controls are likely to be tighter, but it is not clear yet to what extent the controls will be. In the 2017 General Election, the Government restated its target to cut nett migration to below 100,000 people per year. This will be challenging given that nett migration into the UK is currently more than double that amount, and added on to the fact that the Government wants to allow highly-skilled EU immigrants to continue to come to the UK.

The reduction in immigrants could very well cause labour shortages and inflation. A shortage in labour affecting the construction sector could mean the slowing down of on-going developments, inevitably causing real estate demand to rise. This was implicitly recognized in the Government’s November 2017 Budget, in which £34 mil was allocated to retraining the unemployed to work in this sector.

However, any attempt to tighten migration controls will not be made until 2021 at the earliest, given that the Government has made a commitment to import the entire body of EU law into domestic legislation, which will take a while.

This will also mean that regulatory legislation for the property market is likely to stay stagnant until after 2021 as well. Tax change is not likely to differ either. Most taxes have been nationally-determined, with the exception of VAT and customs duties where the EU has specific influence. Thus Brexit will not induce much change in that regard.

Residential Property

The residential property market is on the road to recovery, going up by 34% from the post-crisis sales rate, which was about 1.2 million sales in 2017.

First-time buyers have increased from the long-term average of 41% to 48%. This can possibly be attributed to the Government’s Help to Buy program, which provides more accessible financing for those looking to purchase residential property. Movers are hindered by a lack of stock coming onto the market, and this trend is most pronounced in London.

CBRE predicts that house price growth will slow to around 1.5% in 2018, but rally in 2019 and reach 17.1% in the next five years.

CBRE house price and rental forecast for 2018-2021

Commercial Student Accommodation

Commercial student accommodation is set to be a growth area, with or without a Brexit deal. Research from Cushman & Wakefield showed that the supply of studio rooms has more than doubled since 2014. In 2017 a record-breaking 30,000 bed spaces were provided.

However, supply is still not keeping pace with the growth of students in recent years. CBRE’s research shows that there still is much headroom for further provision of student accommodation in many cities in the UK.

CBRE’s valuation index of 65,000 bed spaces reached double-digits, with total returns at 11.9% in the 12 months to Sept 2017. This significantly outperformed the Investment Property Database (IPD) All Property Index at 9.5%, which provides an indication of investment performance for the entire real estate market as a whole.

Nett rental growth of the index reached 4.1%, which was pushing double the IPD ERV (Estimated Rental Value) growth, at 2.2%.

Future demand for student property is likely to increase as latest UCAS figures show that student applications have gone up. The number of applications by EU and international students for university places in the UK increased to over 100,000 for the first time in 2018, a rise of almost 8% compared to last year. From this it can be seen that Brexit is irrelevant to students looking to further their studies, and the UK remains a popular place due to the reputation it has for quality tertiary education.

David Feeney, advisory associate at Cushman & Wakefield explains, “The UK is still a global education hub, attracting the best students from around the world. Even with Britain’s exit from the EU progressing, the relatively weak pound has attracted additional applications from non-EU students, with their numbers rising 5% over the last year. It is a key market, as 23% of the UK student population is now from overseas.”

Healthcare

Healthcare real estate investment hit record prices in 2017, reaching double (£1.4bn) that of the whole of 2016 (£720m) in just January to October. A majority of investments went into commercial care homes, far surpassing the rest of the healthcare sector.

Healthcare Investment Volumes for 2016 and 2017 (CBRE)

The large disparity of care home supply and demand has driven investments in this area. The UK’s population is ageing rapidly and existing facilities are already unable to cater to the current demand. There is also a lack of support for sufferers of dementia, a demographic which is also increasing rapidly.

We can see more real estate investment trusts (REITs) starting to focus on this in 2018 and beyond. AXA’s acquisition of Retirement Villages and L&G’s acquisition of Inspired Villages and Renaissance Villages were all purchases involving established operators with development pipelines.

Conclusion

The current uncertainty in the air continues to dampen confidence and growth in the UK’s economy. Currency-induced inflation has not yet fully dissipated, slowing consumer spending. Yet, as we have said previously, the weak pound has attracted a good number of international real estate investors to the UK, increasing demand for property. The weak sterling provides investors with a great opportunity to get into the UK property market right now, and cash in later when the market regains its footing.

Certain sectors like commercial student property and commercial elderly care homes are Brexit-proof due to the high demand and low supply, regardless of whether the UK does or does not exit the EU with a deal. These sectors also have the advantage of being accessible to the individual investor and not just REITs, with their availability to be purchased in affordable units.

Article by Ian Choong

  • http://fortune.com/2018/04/16/patrick-stewart-brexit-second-peoples-vote/
  • http://www.irishnews.com/news/worldnews/2018/04/16/news/boris-johnson-draw-upon-star-trek-catch-phrase-to-defend-brexit-1305065/
  • https://www.ft.com/content/d0e520be-cf6b-11e7-b781-794ce08b24dc
  • http://valuedinsights.cbre.co.uk/uk-student-accommodation-storylines-applications-affordability-and-appetite-from-investors/
  • CBRE Brexit Guide for Real Estate Decision Makers
  • https://csiprop.com/brexit-uk-property-outlook/
  • https://csiprop.com/international-applications-to-uk-universities-hit-record-high/
  • https://csiprop.com/press-release-silver-lining-behind-brexit-for-malaysian-investors/
  • Feature image: offshorelivingletter.com

CSI Prop proudly promotes 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: CSI Prop 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.

Need advice or clarification? Call us for more information and/or to find out about our projects! Hotline: 03-2162 2260

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Most Resilient Asset Class in the UK Property Market

The UK property market has been mentioned in the news quite a fair bit. One of the issues that has consistently been bandied about is the UK property market and how it will augur in the face of the political upheaval that the country is going through, namely Brexit and the UK snap elections.

Over the years, what’s clear is that the UK property market — which suffered at the global financial downturn — has become a tougher nut to crack. UK’s property market has remained resolute, with prices continuing to climb skyward.

Underpinning this spiraling price hike is the critical undersupply of housing — a condition that is not just prevalent within the residential real estate sector, but also the student accommodation sector.

One of the students we interviewed who is currently a VITA Student resident in Liverpool. Student property is currently the top investment asset within the UK property market.

Student property is now one of the most — if not the most — resilient asset class in the UK property market. Over the years, more investments have been made into this sector, making it a popular investment among astute investors. Institutional investors like Temasek & GIC have invested heavily into this sector. Watch this video  above to know why student property is now the UK’s Most Resilient Asset Class in the UK property market.


CSI Prop proudly promotes 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: CSI Prop 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.

Need advice or clarification? Call us for more information and/or to find out about our projects! Hotline: 03-2162 2260

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UK Property and the Snap Election

Prime Minister Theresa May’s surprising announcement for a snap election brings the British people to the polls again for the 3rd time in as many years. Image credit: www.themirror.co.ukThe dust has barely settled since Brexit, yet the UK is now bracing for another political turn of events, thanks to PM Theresa May’s call for a snap election this June. This will be the third time Britain will go to the polls in as many years. The surprising announcement saw shock waves reverberate across the FTSE and capital markets as an immediate reaction. Meanwhile, the IMF has revised up its forecast for UK growth this year – from 1.5% to a punchy 2%.

“Naturally, there there are pros and cons. But in a nutshell, the election will pave the way to a clean slate, for the new government to gracefully negotiate Brexit to protect the interests of Britain and its investors/stakeholders. However, the issue of housing shortage remains critical. There will be uncertainty in the market from now leading up to the election, but the impact will not be a long-drawn one, given the short time frame and the surprise element of the PM’s announcement. This is the opportunity the new government should seize to address housing supply for the sake of first-time house buyers, and policies for the sake of landlords, foreign property investors and the buy-to-let market who are crucial in housing supply,” said Virata Thaivasigamony of CSI Prop, alluding to changes in stamp duty policies announced by the UK government.

The pound strengthened significantly when the snap election was announced and has been on an upward trajectory since. Image credit: xe.com
  1. Stronger Sterling

The sterling rallied to its highest level in more than 6 months on the day of the PM’s surprise announcement, jumping 2.37% to $1.2904 against the USD — its highest surge since early October 2016. Deutsche Bank, one of the world’s biggest sterling bears, finally reversed its stance on the sterling, describing the early election as a game-changer for the currency. We accurately predicted that the value of the sterling will drop and rise again with Brexit & Article 50, which was what happened. Our sense is that the sterling will continue to strengthen over the next few months.

  1. Housing Market

The housing market in the UK has been generally resilient. However, there will be uncertainty in the housing market leading up to the election; major decision-making may be put on hold until the election results are out. Uniquely, the announcement was not leaked, which means the uncertainty will be relatively short as the element of surprise has prevented any build-up to affect the housing market. Ultimately, there is a chronic and unsustainable shortage of housing in the UK, which will continue to underpin housing market. Demand will outpace supply and keep prices up for years to come. However, the election is an opportunity for the new government to begin on a clean slate and affect change that benefits the market. It is an opportunity also for the new government to revise legislations and policies on behalf of local landlords, foreign property investors and the buy-to-let market as they play a party in the supply of housing. A clear election result could boost the housing market.

Deutsche Bank has taken a positive stance on the UK snap election and its impact on Brexit negotiations. Image Credit: Ed Conway
  1. Brexit Negotiations

Our sense is that if Theresa May consolidates her position, it will strengthen her mandate to bring more stability particularly vis-a-vis Brexit. Her domestic agenda is to build a country that works for all. A big win means she will be less answerable or beholden to groups interested in a ‘hard exit’; it gives her flexibility to make compromises and cut a more moderate deal for Brexit without worrying about support from the party or Eurosceptics. This will obviously have a positive effect on the UK economy and the pound will keep strengthening. Economists also argue that the election raises the chances of a ‘transitional deal’ after 2019 (when Brexit should have happened), as the next government won’t need to hold another election until 2022 . This is good for investors who are taking advantage of the favourable exchange rate.

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CSI Prop proudly promotes 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: CSI Prop 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.

Need advice or clarification? Call us for more information and/or to find out about our projects! Hotline: 03-2162 2260

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Article 50 – What You Need to Know

British Prime Minister Theresa May has officially triggered Article 50 which marks the beginning of a two-year negotiation process for the terms of UK’s exit from the EU. The UK will ask for free trade and control of immigration and lawmaking while, for the EU, the focus will be on ensuring that there is no easy ride for the British as it tries to safeguard the stability and commitment of its 27 remaining member states. Here’s a quick snapshot of the process and what to expect:

It won’t be an easy exit

It’s open season for both the UK and EU. According to Irish PM Enda Kenny, negotiations could turn vicious while European Commission President Jean-Claude Juncker has said that the process will be “very, very, very difficult”. Not surprising — after all, this is a divorce from a 44-year ‘marriage’. Theresa May will also need to deal with the added pressure of fresh calls for a second independence referendum in Scotland from First Minister Nicola Sturgeon.

A challenging time frame

The timing of Article 50 was up to Britain but what happens next is up to the EU. Time is crucial as there is 2-year deadline and, realistically, the UK has up to end 2018 to agree terms of the breakup and win the trade deal it wants as the resulting deal would need to obtain the consent of the European and British parliaments. Otherwise, Britain will crash out of the EU without a pact and be subject to higher tariffs (subject to the WTO).

Negotiations might move along slowly because all 27 member states of the EU must first agree a common negotiating line before chief negotiator Michael Barnier can meet his British counterpart David Davis at the table. This alone could take months, particularly with distractions along the way such as the French and German elections in May and September, respectively. If the rest of the EU agrees, the two-year negotiating period can be extended, leaving Britain in the EU for a while longer. Or, the two sides could agree on a transitional period.

What’s on the table

Britain wants to win back control of labour flows and lawmaking, while landing a new free trade pact with the bloc by March 2019. The EU wants the UK to first pay off a £50 billion bill to cover EU staff pensions and other expenses that the UK has agreed to. The UK is likely to question the amount to be paid and the EU will not allow the UK to cherry pick on deals to be negotiated now that it is out of the bloc.

The impact

The overall impact of Brexit on the UK and London and their place in the world, remains to be seen, and there are fears that London’s position as a global financial centre will be affected, among other things. But, we expect the UK to recover and regain its momentum once there is clearer direction. The UK has long been a sovereign global power, even before its membership in the EU and we believe that it will find its footing as it charts its freedom from the EU.

  • The performance of the pound. Following the invocation of Article 50, the pound dropped (albeit not too sharply as most of the impact had been factored into the sterling since the referendum) to RM5.48 but rallied back to RM5.50 as at press time. We believe there will be a rise in the currency as negotiations get under way. These few months could be the the last period during which the pound will sink further before it recovers once official negotiations are underway.
  • Window of investment opportunity. Savvy foreign investors are taking advantage of the favourable exchange rate to invest in the UK. They are seeing the opportunity that Brexit presents, understanding that while there might be uncertainties ahead, UK’s fundamentals are strong enough to ride out the Brexit process.

Housing crisis: residential property in demand

The UK’s housing crisis is a real one, and one that is not going to go away anytime soon. Britain needs some 300,000 houses to be built in a year to address skyrocketing prices and housing demand, yet it has consistently fallen short of the mark. With such high prices, there is now an increasing number of young renters known as Generation Rent who are unable to afford to buy their own homes. The scarcity of houses and the favourable exchange rate combines to form an opportunity for property investors in the UK.

PwC’s research into housing affordability for generation rent shows that buyers may now have to save for 19 years in order to buy their first home (assuming deposit is raised entirely from their own savings without family assistance). In 2000, the same group would have been able to buy after saving for just 6 years, and in 1990 it took only around 2 years.  PwC estimates a generation renter starting to save in 2016 can now buy in 2035. See our article: Britain, A Nation of Renters?

Conclusion

Both the EU and the UK government agree on one thing: that this is unprecedented territory and neither side knows how the talks pan out.

British Prime Minister’s letter triggering Article 50. Image: The Telegraph UK

CSI Prop proudly promotes 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: CSI Prop 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.

Need advice or clarification? Call us for more information and/or to find out about our projects! Hotline: 03-2162 2260

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UK Property Outlook 2017

Housing Shortage Continues to Drive UK Property Market Growth in 2017

Summary

Lack of housing in the UK remains the top driver of housing market growth in the UK
Property markets in regional cities like Manchester have surpassed London
UK student property remains resilient to Brexit, growth predicted to hit £45.8bn by Sept 2017
Brexit effects still muted, international investors have greater appetite for UK real estate

Image credit: http://bit.ly/2hNtoqD

The year 2016 was an eventful one for the UK property market, influenced significantly by changes to the stamp duty and Brexit. While these events will continue to underpin market growth in 2017, the critical lack of housing remains the market’s main driver, supporting property prices. This article highlights the various issues that will dominate the UK property landscape in 2017.

Brexit Aftershock – A Final Window of Opportunity

The market calmed down fairly quickly following the results of the EU Referendum. Fears of an immediate house price crash after Brexit have abated with overseas investors particularly gaining a strong appetite for UK real estate, fuelled by the drop in the pound. As 2017 reopens with the spectre of Article 50, we foresee the same uncertainty surrounding the property market following Brexit in 2016, remaining in 2017. PM Theresa May received landslide votes in Parliament on Feb 8 to trigger Article 50, yet this will not change the fact that Brexit shall be a long-drawn affair.

Appetite for UK property stands to remain strong among overseas investors during this window of uncertainty when the sterling remains at its lowest levels since 1985. The Bank of America has advised its clients that it expects the sterling to suffer one last plunge — its lowest — when Article 50 is invoked (expected end March) and that this will be the best time to buy the sterling as the currency will strengthen after official Brexit negotiations get underway. The bank believes the sterling will recover in a V-shape rebound and that currency markets will no longer react to Brexit following this.

We have always believed that London and the UK are resilient and will remain an important global landmark; the market shall right itself around and the pound will rise again once the chaos calms and uncertainty reduces. We anticipate that investment volumes will recover next year, but until then, now is a good time to invest in UK property while the pound is at its weakest.

 

UK Student Property Remains Top Investment Asset

Just as it did during the economic downturn, UK student accommodation is proving resilient to concerns about Brexit. The Universities and Colleges Admissions Service (UCAS) reports that the number of students for 16/17 is set to exceed the previous year. While it may be that the weaker pound is more attractive to overseas students, it also proves the ongoing demand for UK higher education. JLL released research showing that at the start of the 2016/17 academic year, almost 522,000 students were enrolled on undergraduate courses at UK universities, an increase of more than 7,000 on 2015 while the number of acceptances of EU students rose by 8% y-o-y.

We strongly foresee that UK student accommodation is set to remain popular due to its recession-proof qualities, alongside supply still unable to keep up with demand across the UK. There will be growth in overseas investors due to the favourable exchange rate. Knight Frank predicts that UK’s purpose built student accommodation sector is set to reach a total value of £45.8bn by September 2017 while rental growth of 2.5% is expected. The sector has grown by 37% since 2014, from £30.9bn to £42.5bn, making it one of the fastest growing asset classes in the UK property market.

 

House Prices Continue to Increase

The UK housing market is a tough cookie, staying resilient in the toughest of times.

Figures by the Office for National Statistics (ONS) for October 2016 showed that house prices across the UK grew 6.9% y-o-y. While this may be the lowest growth figures recorded since end 2015 (the market slowed mostly due to stamp duty and other tax changes), this is still strong growth nonetheless, driven by the general undersupply of housing across the UK. The Royal Institution of Chartered Surveyors (Rics) predicts that UK house price growth will slow down in 2017, but that the legacy of insufficient housing will see demand continue to outstrip supply, leading to a 3% rise over the year. The weaker pound will prove favourable to international investors.

 

Britain’s Crisis: Housing Remains Critically Undersupplied

Some 250,000 – 300,000 houses need to be built every single year to tackle soaring house prices and home shortage in England. The latest figures show that only 190,000 homes were added to England’s stock last year — the highest number since the financial crisis. With the current uncertain climate, there are fears that fewer homes will be built in 2017, with Jones Lang Lasalle (JLL) suggesting that the number of housing starts (ie start building) could fall to 134,000 (from 147,880 in 2016).


Rents Continue Rising

Data from Savills shows house prices vs rental. Image credit: BBC

Despite the change in stamp duty affecting landlords, there remains a significant community of renters in the UK, due to the critical undersupply of housing and prices at inaccessible levels. Commentators predict rent rises of 2%-3% across the UK; Savills has forecast a rise of 2.5% in 2017, while in London the increase will be at 3% as more people share homes to split the cost. In fact, Savills has predicted that rents would rise faster than house prices i.e. at 19% between now and 2021 while house prices only rise by 13%. Rics suggests that rents will rise by about 5% p.a. for the next five years because of strong demand and shortage of properties.

PwC’s research into housing affordability for generation rent shows that buyers may now have to save for 19 years in order to buy their first home (assuming deposit is raised entirely from their own savings without family assistance). In 2000, the same group would have been able to buy after saving for just 6 years, and in 1990 it took only around 2 years.  PwC estimates a generation renter starting to save in 2016 can now buy in 2035. See our article: Britain, A Nation of Renters?

Manchester Knocks London Out in Price Growth

For the first time in 7 years, London is no longer within the top three growth regions in the UK as the effect of Brexit is more keenly felt in London. Regional cities like Manchester and Birmingham are in the spotlight due to better public realm improvements and more students choosing to stay and work in these cities. Manchester is leading the price growth among key cities in the UK, recording rises of 8.9% y-o-y as demand exceeds supply and unemployment falls. The outer boroughs of London are posting faster growth rates than the inner boroughs and this trend is looking to stay this year.

House price growth rates: inner vs outer London boroughs. Source & credit: CBRE

Rightmove’s most recent report, based on asking prices of properties for sale, shows a steady start to 2017’s housing market, with annual growth in the East and South-East regions of England significantly outpacing London and the South-West. Again, prices are being bolstered by a lack of housing, meaning that demand continues to outstrip supply.

Conclusion

There is strong potential in the UK real estate market as it is not as affected by Brexit as many think. UK student accommodation is a good investment asset as we see increased interest and investments into the sector, even from among our own clients. Key to strong returns is to buy in cities with  good universities and accommodation undersupply. For residential property, we have always maintained that Manchester is the city to focus on while outer boroughs of London, particularly East London (especially areas with Crossrail accessibility) will bring better returns than inner London.

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CSI Prop proudly promotes 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: CSI Prop 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.

Need advice or clarification? Call us for more information and/or to find out about our projects! Hotline: 03-2162 2260

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Emerging Trends 80 Days After Brexit

Some 80 days have passed. What are the trends that have emerged in the property scene? Image credit: http://bit.ly/2cumEgw

It has been 2. 5 months since Brexit. By the end of Sept, the government will start to think steps to invoke Article 50, the ‘divorce process’ that will trigger the UK’s departure from the EU. The property market was among the sectors hit hardest by the referendum, with seven commercial property funds freezing trading within weeks, Reuters reports. However, some trends have emerged that allow for a better observation of the property sector, namely:

  • UK property market players and investors are still confident about the future prospects of the market. Regional cities like Manchester & Liverpool continue to outperform London
  • Alternative/specialist property like UK student property/purpose built student accommodation (PBSA) and hotels gained greater traction among investors due to its long leases and liquid returns
  • Private rental sector remains significant as housing supply unable to keep up with demand

 

  1. Future prospects of the market looks good. Regional cities like Manchester & Liverpool outperform London

Indeed, the first post-Brexit updates from property companies indicated greater caution. However, property auctioneers Network Auctions said that in the months since Brexit, little has changed in terms of investor confidence. There has emerged conditions favourable to investors such as the low inflation and low interest rate. Overseas investors are also taking advantage of the low pound.

New data shows that the UK’s housing market, despite having slowed down, is showing signs of healthy activity and resilience.

Using data representative of 90% of properties in the UK’s market, it was observed that the total number of properties had risen on 8th August compared to 22nd June with 866,179 properties were for sale across the UK before the vote.  Readings on 8th August shows this number increased by 1.7% on the market, but with less properties under offer (decrease of 4.3%) versus pre-Brexit.

The average asking price for a UK property also rose by £1,040 from £240,470 on 25th July to £241,510 in August while the average asking price for all properties for sale on the market had increased by 3% to an average value of £247,026 in the same period.

The latest Hometrack UK Cities House Price Index reveals that amid the annual rate of house price inflation slowing down by 9.5% in July after 12 months of higher growth across 20 cities in the UK, this is not the case in the large regional cities in the north of England and Scotland. The rate of annual house price growth in the Manchester, Liverpool, Leeds, Birmingham and Nottingham continues to rise by 7% – 8%.

 

  1. Increased interest in alternative/specialist property sectors e.g. UK student property (PBSA)

Reuters reports that property investors are are now favouring alternative property such as student property (PBSA), hotels and hospitals. Alternatives accounted for 16% of the total UK property investment in July — an increase from 13% in Q2.

Office and retail total returns fell 3.7% and 3.2% respectively in July while returns from alternative assets were down by only 1.4% in recent months, said CBRE Group Inc. Additionally, CBRE also observed rental growth for alternative assets while traditional property assets saw none.

Alternatives have gained traction due to their long leases and steady tenants, and tend to be less risky and more defensive, compared to traditional commercial property like office and retail spaces.

The PBSA sector demonstrated its comparative resilience during the global financial crisis, showcasing its strong fundamentals. Earlier this month, the A-levels results announcement showed some 424,000 students receive confirmed places in their respective universities, with the number of EU students increasing by 11% to 26,800 despite fears. Note: the UK is not dependent on EU students who represent only around 6% of full-time students.

The sector will continue to remain resilient, with demand for well-located student housing schemes remaining strong,  as structural undersupply underpins rental growth (JLL UK Student Housing Quarterly Bulletin 2016 Q2 Review).

 

iii. Private rental sector significant as housing supply unable to keep up with demand

The proportion of private tenants rose from 11% in 2003 to 19% last year. In Greater Manchester, it rose from 6% to 20% over the same period.

Much has contributed to the private rental sector, such as the relative unaffordability of house prices which corresponds with an acute shortage in housing supply and social housing. The fall in home ownership, according to data from non-profit organisation Resolution Foundation, is at a 30-year low, and corresponded with the rise in renting from private landlords.

Following the Brexit vote, the rental market remains steady as rents, supply and tenant demand did not significantly change in July. The latest monthly report released by the Association of Residential Letting Agents (ARLA) found that whilst just 12% of agents reported a dip in rent, a staggering three quarters (77%) saw no change in rental costs.

In a similar fashion, the supply of properties and demand for housing remained unchanged immediately after the vote as two-thirds (67%) of ARLA members reported no change in supply, and a further 64% reported no change in the number of prospective tenants looking for properties.

However, a shadow of ambiguity still hangs over the rental market as nearly half (45%) of letting agents witnessed uncertainty from landlords looking to let properties. Fewer entrants to the rental market could put further pressure on rents, as supply falls short of the substantial demand from tenants.

Looking forward, with the current lack of housing to buy, it does appear that the rental sector is going to remain significant for a while.

CSI Prop proudly promotes 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: CSI Prop 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.

Need advice or clarification? Call us for more information and/or to find out about our projects! Hotline: 03-2162 2260

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Brexit: UK Property Outlook

Brexit: the UK has left the building. What is the UK property outlook post-Brexit? Image credit: http://bit.ly/29vbXHr

In a surprisingly historic and shocking move, the United Kingdom (UK) voted to leave the European Union (EU) on June 23rd, throwing the global community and stock markets into a furor. But what next? How will Brexit impact the economic and political climate? As expected, plenty of conjecture has surfaced through the cracks. Our research team at CSI Prop cuts through the noise of speculation and presents an unbiased view of what the future holds for the UK economy and residential property market.

Political and financial uncertainty is affirmative, but nothing drastic as the world waits for Article 50 to kick off

As we had correctly predicted in our Brexit FAQ published before the Referendum, Brexit has caused uncertainty, resulting in a tumble in the pound. The housing market has slowed down, but not at any rate worth panicking over. With David Cameron’s resignation, Theresa May has been elected into office as new Prime Minister. Only after this can the government call for Article 50 to take effect.

Britain’s exit is not immediate

The Article 50 process, crudely put, is a divorce. It sets out the exit process for countries wanting to leave the EU, but because it is vague, member states need to enter into negotiations to thrash out the terms of any deal. A two-year window will begin immediately after Article 50 is invoked; this is when Britain will negotiate plans for its relationship with the EU, post-Brexit. The topics to be broached are wide and the terms of a deal will require the unanimous agreement of all 28 member states. This could take more than two years. In the meantime, Britain is still bound by the obligations and responsibilities of its membership with the EU.

Opportunity abounds amid risks

The immediate issues facing the UK is political rather than economic. As such, the political uncertainty could affect the economic climate. The UK government will try to mitigate disruptions and bring certainty to the financial markets as best as it can. Interest rates will likely remain lower for longer. In the short term, the uncertainty of UK’s future relationship with the EU will affect trade and consumer confidence, but this is unlikely to drag out into a blown-out recession as predicted by some naysayers. In short, the UK’s economy is in good health and will ride out the storm.

Ultimately, UK is home to 60 million wealthy consumers and a high-skilled workforce — something that will remain attractive to multinational companies across the globe. Coca-Cola and BMW will still want to access a market this big; skill-based employers such as PwC and Google will always want to access such a large pool of talent (source: Knight Frank).

Higher buying power for overseas investors as pound value falls. Pound to ringgit ratio equivalent to exchange rates after the last financial crisis in 2008.

While investment sentiment will be affected, UK will remain an attractive property investment destination. It looks increasingly likely that investment will be led by Asian and US investors.  With the fall in the pound, London – the most expensive property investment location in the UK – has become more affordable and overseas buyers now have significantly higher buying power. The media is rife with reports of shrewd investors seizing this sterling opportunity to invest in the market. Knight Frank reports that the sale of prime London real estate increased by 38% a week after Brexit!

At the time of publication, the pound to ringgit value stands at £1: RM5.18 representing a 14% drop. More significantly, the value of the pound against the US dollar has dropped to a 31-year low, at £1: US$1.28.

The devaluation of the pound is at a 31-year low against the USD and back within the 2008 rates against the MYR. Overseas investors now have a significantly increased buying power.

People looking to do business in the UK now have a more level playing field with the abolishment of EU red tape, making London an attractive place to invest again.

House prices to rise in the medium term

The UK housing market has performed well, rallying even in spite of the recessions over the years.

A general short-term slowdown in the housing market is expected. Developments that have not yet begun could be delayed pending more clarity. The slowdown in the residential market may be a good thing for first-time buyers as property becomes more affordable.

However, the fact remains that the inherent undersupply of housing in the UK will continue to underpin the market. The above chart demonstrates the growth in the UK housing market through the years even during the recessions. The general housing shortage means that prices should rise in the medium to long term as reticence by developers to commit to new builds, will make it harder for the government to achieve its target of building new homes by 2020. This will push house prices up and the cost of renting will rise across many parts of UK as demand from tenants increases whilst new housing supply falls.

Student property to remain resilient

UK student property proved its resilience by outperforming other assets  in weathering the past economic downturn. We are confident that it will ride the Brexit wave well as demand for higher education in the UK is unlikely to be directly affected due to (i) a more attractive exchange rate because of the drop in the pound for international students; (ii) unlikely change in domestic demand for higher education. Knight Frank anticipates that EU students may be required to pay full international rates, but noted that they only represent around 6% of the total full-time student population in the UK. The acute undersupply in purpose built student accommodation in the UK will continue to uphold market values.

UK economy to withstand the challenge

The UK has long been a global superpower with London as the world’s financial, education and cultural centre – even before it became a member of the EU. London will work towards negotiating its own treaties with the world and terms of exit with the EU. We see London’s position as the world’s financial centre wavering in the short term, but will regain its strength once the dust settles.

UK education will continue to hold its stead; we don’t foresee anyone waking up and saying, “I’m not going to study in the London School of Economics because the UK is no longer part of the EU.”

Summary

That Brexit has caused uncertainty in the housing and economic market, is undeniable. There are risks and opportunities, but the UK economy looks set to prevail. The business world will adapt and Britain’s policies and the flexible economy will help it right itself around. While there will be a slowdown in the housing market, this will only be in the short term as the lack of housing supply will not change overnight. Given the substantial shortage of housing across the UK, the residential housing market will remain a good investment in the long term even as student accommodation remains resilient.

Ultimately, Brexit has probably presented one of the best opportunities to invest in a UK property. In the long term, taking advantage of the current market will allow you to reap strong returns once the UK economy picks up again.

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CSI Prop proudly promotes 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: CSI Prop 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.

Need advice or clarification? Call us for more information and/or to find out about our projects! Hotline: 03-2162 2260

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Press Release – Silver Lining Behind Brexit for Malaysian Investors

For Immediate Release

Silver Lining Behind Brexit for Malaysian Investors

European Referendum holds many advantages for Malaysian investors

The European Referendum holds many advantages for Malaysian investors. Image taken from: http://bit.ly/1U8K0dS

Investors of UK property can take comfort that there is a silver lining behind the impending European Referendum.

In the weeks leading up to Brexit, investors have been waiting with bated breath to see the outcome of the referendum on the UK economic and investments market should Britain exit the European Union (EU). Negative speculation has been rife with investors taking a wait and see approach, resulting in subdued demand in the property market especially in London.

For CSI Prop spokesperson Virata Thaivasigamony, however, Brexit offers a number of advantages to investors.

“True, the market has been subdued because of uncertainty leading up to the referendum. However, the Brexit uncertainty presents great buying opportunities especially for buyers from countries with weak exchange rates, for example, Malaysia. In this short term, there are amazing gains for investors as the weaker pound has worked to our advantage,” he said, adding that Britain has always enjoyed a strong and stable economy while London has been a leading global financial centre even before the EU was formed.

Cornerstone International is a leading real estate consultancy marketing foreign real estate to Malaysian investors. The company is based in Kuala Lumpur.

Research by JLL has revealed that some 58% of investors were on the hunt for opportunistic investments, with a number of Asia-based investors looking to capitalize on the weaker pound and slower property market.

While acknowledging that London will take a hit in the event of a Brexit, Virata is confident that the UK will regain its economic and political strength in due course.

“If Brexit occurs, there will be a period of uncertainty and the pound will take a beating. As a result, the UK will be ‘on sale’. Again this is advantageous to investors, particularly those investing in UK student property because UK education will remain strong regardless of Brexit. Malaysians and other foreigners including those from the EU will not stop sending their children to study in the UK – people still want a degree from a UK university,” he added.

The UK’s university system is oversubscribed with 7.3 applications from overseas for each EU student accepted in 2015 and 7.9 for each place accepted by a non-EU student. With demand in purpose built student accommodation superseding supply, the student accommodation market will be more resilient to Brexit than other commercial property even as the demand for UK education remains unabated.

A JLL survey had revealed that a significant number of UK investors remained confident of the student accommodation sector.

“Eventually the uncertainty from Britain’s exit will level off as London makes its own treaties with other countries. London will get back on its feet, and the pound will strengthen again, offering great returns to savvy investors who had taken advantage of the weaker pound. Irrespective of what happens on June 23rd, UK will remain a safe haven for investors,” said Virata, adding that UK is facing a general undersupply in housing.

Conversely, Virata foresees a rapid strengthening of the British currency if Britain chooses to remain in the EU, again benefiting savvy investors who had chosen to take advantage of the weaker pound.

Malaysia is the third largest investor to the UK and Australia property markets in 2014 and 2015, with Singapore and China in first and second place, respectively.

-ends.

CSI Prop proudly promotes 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: CSI Prop 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.

Need advice or clarification? Call us for more information and/or to find out about our projects! Hotline: 03-2162 2260

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Brexit and the Foreign Property Investor

Photo credit: http://www.catholicherald.co.uk/

The looming Brexit referendum is sending property investors into a bit of a worry whirl. What are the implications?

Come June 23, UK citizens will vote on whether the nation should withdraw from the European Union. While there is still time before that happens, the uncertainty is a cause for concern across all industries in the UK. Here’s a Brexit FAQ specially for investors looking to invest in property in the UK.

What is Brexit?

Brexit refers to the campaign for a British Exit from the European Union, to end control by Brussels and give Britain the freedom to manage its own affairs. The referendum takes place on June 23. Currently, both factions are almost equally matched, with the pro-Europeans slightly ahead.

What are the general economic implications of the current lead-up to Brexit on the UK?

Clearly, the uncertainty has directly affected the market, resulting in, among others, (i) the drop of the British pound, (ii) the slide of share prices (iii) some major international investors withholding from committing to luxury property until after the referendum, (iv) some contracts exchanged on UK deals being conditional on a vote to remain, and (v) softening of business confidence.

What if UK exits the EU?

There is uncertainty over what would happen if the UK withdraws from the EU as Brexit is a future hypothetical event and largely lacks definition. In the short-term after the exit, we foresee a period of uncertainty as new terms of engagement with Europe are worked out. The UK economy may suffer in that short-term, but we are confident that it will right itself in time. The British pound will also weaken in the short term, but rise soon enough once the market acclimatizes to the situation.

How will UK and London’s global standing be impacted by Brexit?

The UK was a global economic superpower and London one of the world’s strongest financial centres even before it became part of the EU. We are confident the UK will eventually find its footing again should it exit the EU. Reports have also shown that investors are generally more positive about the longer term state of a UK out of Europe.

Will Brexit affect housing in the UK?

There is no serious economic analysis to suggest that all trade with the EU would cease in the event of Brexit. The most immediate and significant slowdown in investment would be pre- and potentially post-Brexit, due to uncertainty of the former and instability of the latter.

The value of the pound will likely diminish in the short term and there is risk of a sharp change in interest rates which could cause the housing market to soften. However, the UK is already facing a shortage in housing now, which won’t change in the event of a Brexit.

The possibility of dropping prices or a cheaper pound allows some investors to take advantage of less competitive processes as the property industry will bounce back in the long term, resulting in higher yields.  For foreign investors, a softer sterling means they can get more for their money, while the immediate instability in the market would mean the chance to invest in property that is highly likely to recover at a later date.

London’s housing market would be impacted significantly, but if you’ve always wanted to buy property in London, this is the time. As explained above, we are confident it will eventually find its footing again as London had always been a financial capital even before it entered the EU.

What if the UK remains in the Euro Zone?

The British pound will strengthen substantially as the market has priced in the uncertainty resulting from Brexit, which has resulted in the weaker currency in recent months.

Conclusion

The Brexit referendum has created a temporary situation of a weak pound which has paved the way for a tremendous buying opportunity for foreign investors compared to early 2015. The current exchange rate is at RM5.50 : £1 compared to RM6.80 : £1 as at late 2015. This is a one-time opportunity for foreign investors to take advantage of the situation.

CSI Prop proudly promotes 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: CSI Prop 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.

Need advice or clarification? Call us for more information and/or to find out about our projects! Hotline: 03-2162 2260