UK property market sees renewed investor interest as Brexit fears fade
Growth in the lettings market makes country attractive to investors looking for yields, capital appreciation
Almost six months after the United Kingdom voted to leave the European Union, investor sentiment about the property market is returning to where it was at the start of the year.
According to data from the Royal Institution of Chartered Surveyors, who conduct a monthly survey of hundreds of estate agents for their views on the UK residential market, enquiries from new buyers are now at a level close to where they were in February, and the trend line since the vote in June has been steadily improving.
Our conversations on the ground in international markets show that foreign property investors accept Brexit as the new normal, and they are moving on in this new reality. For some buyers, this is helped by the weakening pound, which has made UK property around 20 per cent cheaper compared to this time last year for those buying in US dollars, or currencies pegged to it such as the Hong Kong dollar. This is one reason why foreign investment has been sustained following the vote.
One of the major trends we are seeing following the referendum is increasing rental demand, which is driving growth in the lettings market alongside that in the sales market. Although capital growth remains healthy, we are especially seeing rental yields are on the rise. One of the main reasons for this is the simple rule of supply and demand: the UK continues to add housing capacity at a rate far below what the government estimates is required. In 2015 and 2016, for instance, 139,650 new housing units are expected to be completed in the UK, whereas the department for communities and local government puts the need at between 232,000 and 300,000 new units per year. Even if Brexit does have an impact on population growth, the gap between demand and supply is vast and we do not envisage it being bridged any time soon.
Growth in the lettings market makes the UK increasingly attractive to investors looking for yield as well as capital appreciation, and this is a trend that should continue, with stronger yields in the years to come. What is more, rising yields fuel demand from the private rented sector – funds and institutions who ‘buy to rent’ – which will further constrain supply and drive up demand and prices, something we expect to see more of next year.
