KELLOGGS BUILDING

In the dynamic landscape of real estate, overseas investors are increasingly turning their attention to the United Kingdom, attracted by the stability of its property market, diverse investment options, and the potential for lucrative returns. 

Property in the UK has long been considered a stable way to store value. Attractive yields and long-term relative political stability create the perfect environment for property investment.

It is estimated that foreign ownership of UK properties has trebled in the past decade. Buyers have been mostly spread across twenty different countries, with those from the Middle East and Southeast Asia being particularly active in the UK property market. With house prices projected to continue rising over the next five years, overseas property investment looks set to continue along a similar trajectory.

A survey of 500 high-net-worth investors and asset managers by law firm DLA Piper found that the UK was a top global property investment ‘hotspot’. The same survey found that investors from China and the US ranked the UK as the best for residential property investment, citing the high demand, shortfall in supply, strong yields and attractive prices as their reasons.

If you're overseas and are considering investment in UK property, this guide from Harvey Homes aims to shed light on the key factors driving this trend and provide insights to help you navigate this promising market.

The Appeal of UK Property

In 2019, UK Prime Minister Boris Johnson stated that the number of UK foreign direct investments was at an all-time high. Despite the difficulties caused by Brexit and COVID-19 in recent years, the UK property market continues to be robust.

There are several reasons why the UK is a good place to invest in property. Some of these reasons are as follows:

1. Stability and Long-Term Growth:

The UK has long been recognised for the stability of its property market. Investors are repeatedly drawn to the historical resilience of UK real estate, which offers a relatively safe and secure environment for capital appreciation in the long term.

2. Diversification Opportunities:

The UK property market is incredibly diverse, encompassing residential, commercial, and industrial sectors. Overseas investors have the flexibility to diversify their portfolios, choosing from a range of property types and locations to suit their investment goals.

3. Educational and Healthcare Hubs:

Cities like London and Manchester boast world-renowned educational and healthcare institutions. This makes them attractive investment locations, as a steady demand for student accommodation and quality healthcare facilities contributes to the overall stability of the property market.

4. Transparent Legal System:

The UK's transparent legal system and well-established property laws provide overseas investors with confidence and ease of navigating transactions. Clear regulations and a reliable legal framework contribute to a favourable investment environment.

5. High rental yields: 

Rental income from UK property offers some of the highest yields in the world, particularly where affordable housing is concerned.

6. Housing shortage: 

The population of the UK is steadily increasing while too few properties have been built in recent years to cope with demand. At current building rates, it could take up to 15 years for the market to catch up.

Key Considerations for Overseas Investors

There are of course several other things to consider when buying UK property from abroad. Some of these key considerations include:

1. Market Research:

Thorough market research is essential. Understand the specific dynamics of the area you're interested in, including local property trends, demand and supply factors, and potential regulatory changes that might impact your investment.

2. Currency Exchange:

Keep a close eye on currency exchange rates, as fluctuations can significantly impact your returns. Consider consulting with financial experts to devise strategies for mitigating currency risks.

3. Tax Implications:

Familiarise yourself with the tax implications of overseas property investment in the UK. Stay updated on any changes in tax regulations and seek professional advice to optimise your tax position.

4. Financing Options:

Explore financing options available to overseas investors. Some UK lenders offer mortgages to non-resident buyers, and understanding these options can help you make informed decisions about your investment strategy.

UK Register of Overseas Entities

If you are an overseas investor interested in UK property, then it is important to take into account the various laws and regulations that apply to the market.

The UK Register of Overseas Entities was established in August 2022.  The purpose of this Register is to increase transparency and tax compliance. This means that overseas entities that own UK property or land are required to declare their beneficial owners or managing officers. Overseas entities cannot buy, sell, transfer, lease, or raise a charge against land in the UK unless they have registered with Companies House.

The UK has a wide range of tax laws that apply to income generated by UK properties, even if they are held by an overseas entity, as outlined by a UK government policy paper. For instance, non-UK resident companies that purchase residential property in England and Northern Ireland over a certain amount are subject to a flat rate 15% Stamp Duty Land Tax (SDLT) charge.

Another example is that the UK rental income of overseas companies has been subject to corporation tax in April 2020.

Emerging Trends in Overseas Investment

1. Build-to-Rent Developments:

The build-to-rent sector is gaining traction, providing overseas investors with opportunities to invest in purpose-built rental properties. This trend aligns with the increasing demand for quality rental housing in urban centres.

2. Sustainable and Green Initiatives:

There is a growing emphasis on sustainability in the UK property market. Overseas investors are increasingly considering eco-friendly and energy-efficient developments that align with global environmental goals.

3. Technology Integration:

The integration of technology in property management and smart home solutions is becoming a key consideration for investors. Tech-savvy developments are not only attractive to residents but also offer the potential for increased property value.

Overseas investment in UK property presents a promising avenue for diversification and growth. As with any investment, thorough research, a clear understanding of the market, and staying abreast of legal and regulatory developments are essential. The UK's property market, characterised by stability, diversity, and innovation, invites investors from around the globe to explore and capitalise on the wealth of opportunities it offers. 

Whether you're a seasoned investor or venturing into overseas property investment for the first time, the UK's dynamic real estate market holds the potential to be a rewarding and resilient component of your investment portfolio.