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Why Smart Malaysians Invest In The UK

Research has indicated that property remains a preferred investment among the ultra-wealthy, offering definitive and comparatively rewarding long-term returns.

Australian and UK property in particular, holds great allure for investors due to sentiment and, most importantly, market resilience and strong capital appreciation and returns.

In our previous article, we touched briefly on why smart Malaysians invest in the UK and Australia. Over the next few articles, we will focus on UK property and zoom in on the individual elements that make UK property a smart investment choice. We will also have a section that highlights various investment hotspots across the country.

SNAPSHOT: WHY UK PROPERTY IS A SMART INVESTMENT CHOICE

📌    FACT 1: Fastest price growth: Doubling every 10 years

📌    FACT 2: 4 Million housing shortage (supply can’t meet demand)

📌    FACT 3: Brexit Opportunity: Pound at-time low, RM5.35 vs RM7

📌    FACT 4: Get up to RM65k tax-free yearly

📌    FACT 5: Up to 28% per year via property investment


We begin, in this article, by focusing on UK’s spectacular house price growth. UK’s housing values have been on a steady incline, doubling approximately every 10 years since 1952 (Figure 1).

With much chatter surrounding the uncertainties of Brexit, investors have become more risk-averse; hence, investments that provide long-term and secure income streams are now highly sought after. The returns and lower risk from property investment in the UK compared to other countries, are what continues to underpin demand from overseas investors, including Malaysians.

House prices nationwide have continued to grow since the Referendum, albeit at a slower rate as a result of the drag in London’s property values. Peaks and troughs in housing values are expected in times of uncertainty, but statistics have shown that UK property has remained resilient despite the multiple downturns over the last few decades (Figure 1).

Figure 1: UK house prices have continued growing since 1952. A clear recovery in house price growth is evident after every downturn, demonstrating the market’s resilience and ability to turn around, spurred by the underlying shortage of housing and improved fundamentals. Source: Nationwide

Needless to say, the slowdown in house price growth coupled with cheaper currency rates, has caused a spike in investments by overseas investors. A recent survey revealed that of the investors currently investing in UK property, 45% are overseas buyers. 1 in 4 claim to be investing because of Brexit.

Yet, housing remains inaccessible for a majority of local Brits despite the recent narrowing of house prices and wages — in some cities, the average house costs 10 times the average salary.

Inevitably, affordability constraints coupled with lifestyle changes has caused the number of households living in private rental housing to double over the last decade. A report by Knight Frank shows that 1 out of 4 households will be renting privately — i.e. renting for life — by the end of 2021, while the remaining ¾ will only own their first home between their mid-30s and mid-40s. According to research, it now takes up to 17 years for a typical single first-time buyer to raise enough cash for a 15% deposit on a home! This translates to a ready cache of tenants for landlords.

With the London market experiencing a price lull at present, cities like Birmingham in the West Midlands, and Liverpool and Manchester in the northwest, have been charting the best performance in house price growth. Hometrack’s UK Cities House Price Index (Nov 2018) places Manchester as the top city for annual house price growth (6.6%), with Birmingham (6.3%) and Liverpool (5.2%) in the top 5.

INVESTMENT HOTSPOT 1
MANCHESTER: UK’S FASTEST-GROWING CITY

Currently the fastest-growing city outside London, and one of the most interconnected regions in the UK, Manchester has earned a reputation as the UK’s hotbed of tech and startup talent.

The city’s vibrant talent pool, coupled with world-class transport links, has propelled Manchester to become one of the best cities in Europe to do business in. It is now the regional centre for finance, commerce and retail, with major corporations setting up key operations within the city.

Manchester is home to 4 leading universities, contributing to a student population (and potential tenant pool!) of approximately 100,000. Thanks to the city’s strong economy, many of its graduates choose to stay on — Manchester’s graduate retention rate at 51% is second only to London (Figure 2).

Figure 2 According to the most recent data by the Centre for Cities (released Jan 2017), Manchester boasts an impressive graduate retention rate, second only to London. Source: Centre for Cities.

When measured by a combination of jobs and population increase, Manchester had seen the fastest city centre growth in England and Wales between 2002 – 2015. The city is on track to experience a 14.1% increase in population between 2018 and 2041.

With jobs and population growth on the rise, as well as an active student market, demand for housing has also risen, causing prices to skyrocket.

Manchester has the UK’s Highest House Price & Rental Growth

Manchester is 1 of the 4 cities in the UK where high competing land values and policy restrictions cause barriers to development. Thus, in spite of strong demand, pipelines of new stock remain low, resulting in increasing property prices.

Regeneration in the city and a severe constraint in housing supply will continue to drive prices. Housing values are forecast to grow by 22.8% by 2022 compared with the 12.6% across the UK (Figure 3),  while rents are forecast to grow by 17.6% vs UK’s 12.6% within the same period.

Figure 3: Manchester is forecast to show consistent house price growth over the next 5 years, increasing by 22.8% compared with 12.6% nationally, while rents are expected to grow by 17.6% vs UK’s 12.6% within the same period. (Source: JLL)

Prices of city centre apartments, while having risen rapidly, are still more affordable at approximately £250,000 compared to London’s lofty rates of more than  £1mil.

In the 12 months to Sept 2018 alone, rent in Manchester had gone up by about 7%, driving among some of the highest rental returns in the UK — in some areas of the city, rental yields reached as high as 10.2%! Comparatively, London’s rental returns are between 2% and 4%.

Interested investors can look at new-build apartments in the city centre as a great option for investment. An example is the Elizabeth Tower, developed by a leading UK developer. Elizabeth Tower is close to the city’s key economic hubs and vibrant leisure attractions, with easy access to transport links.

Elizabeth Tower, standing tall at Crown Street with 360° views of central Manchester.

 

What’s Next?

In our next article, we will take a close look at the chronic undersupply of housing in the UK and its effect on investment. We will also be covering another investment hotspot: Liverpool.


Keen to find out more about investing in Australia and the UK? Get the latest edition of CSI PROP’s international property investor guide, Investing Intelligently Towards 2019/20 today. The guide also includes important information on the property purchase cycles in both countries including financing, legal, property management and taxation. It is written by our very own in-house researchers and published biennially – a testament to  how serious we are when it comes to research and education.

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