The Brexit Effect: property buyers seek out investment deals
Last year, the United Kingdom voted to withdraw from the European Union, sending shock waves around the world.
Since the deciding referendum, the value of the pound has dropped significantly. During the third quarter of 2016, the pound fell to the lowest value it has been in 31 years, due to the uncertainty and speculation about what will happen after the United Kingdom has officially removed itself from the EU. Some believe it will send the United Kingdom into a recession, while others think it will become stronger as an independent sovereign state.
As the pound continues to decline, prices of real estate in the UK have also declined, creating huge opportunities for investors who want to purchase these properties at a discount. Many overseas buyers, particularly from the Middle East, are expressing interest in real estate in London, where a property boom is underway, with investors purchasing property with the aim of profiting big time once the pound value starts to go back up again.
Overseas investors are counting on the markets to turn around at some point in the future. Once that happens, they’ll be able to sell their properties for double or even triple the amount that they originally paid for them. In the meantime, these overseas investors can rent out their properties in order to cover the costs of their property taxes and maintenance expenses. That way, they won’t have to invest any more money into their properties as they wait for the value of the pound to grow again.
The two biggest demographics of overseas buyers seeking investment property in the UK are the Chinese and Middle Easterners. Oil billionaires in the Middle East and wealthy Chinese business people can afford to pay cash for investment properties in London. Since they have a strong belief that they’re going to profit on these property investments, overseas buyers do not see it as much of a risk at all. Instead, they see it as a golden opportunity to make a lot of money as the uncertainty about Brexit and its consequences continues to spread across the United Kingdom and the rest of the European Union.
To give you an idea of how prices have changed in London, let’s examine some statistics. As soon as Brexit was announced, the average price of a home in London dropped by £42,000. The average sales price on a London home was £630,100 at the end of November 2015, which decreased to £579,200 following the Brexit announcement.
However, real estate is the one investment that will always bounce back. There is only a limited amount of property in the United Kingdom, especially in London where real estate prices have reached eye-watering levels. You can purchase virtually any kind of property in London at a discount and be guaranteed to profit because the location is what sells it. So, it only makes sense that international investors want to seize the opportunity that Brexit has created in the British real estate markets.
Another factor in their favour is that international buyers don’t have much competition amongst the domestic buyers of Britain. British investors and property owners are the ones taking a big financial loss from the Brexit move. When they originally invested in properties, it was when the real estate market prices were high in London. As property values have diminished, so have their investments. This means they’ll either have to sell their properties for a loss or hold onto them so they can try to break even in the future. Most British investors want to sell their properties and get out now before the British markets get worse. At this point, the only buyers that will be left are the ones overseas who haven’t had their current personal income and investments affected by Brexit.
It is estimated that over 55% of London property owners are from Africa, China Russia, India, or the Middle East. Out of the 8.6 million people who live in London, 40% of them were not born in the United Kingdom. These percentages are continuing to grow all the time and will likely see a huge increase thanks to Brexit. As for the native British people of London, many of them are in a tough position because they cannot afford to move and have become financially strapped. Therefore, they certainly can’t afford to invest in London property while it is still cheap. All they can afford to do is rent London property that is likely owned by an overseas investor. This is a trend that will keep getting stronger over the next 5 years or so after the United Kingdom has finalised their move from the European Union.