Double UK Property Boom for Overseas Investors

Double UK Property Boom for Overseas Investors

Wealthy overseas investors whose countries are experiencing economic difficulties have had a double boost if they bought property in London since the start of 2013. For one thing, property prices in London’s better areas rose by 7.5% between the first quarter of last year and the first three months of 2014. And the strength of the pound against a number of other currencies means that the value of the investment in the investor’s native currency could be significantly higher.

Research by the International Residential Research Team at property specialists Knight Frank, shows that Turkish investors are topping the table. Because of the poor showing of the Turkish lira against the pound, a luxury property bought somewhere such as London’s Mayfair, Knightsbridge or Hampstead now represents a 39% rise in the value of the investment. Russian investors are not far behind. A Russian who had bought a year ago would see a rise of over 33% in their investment, were they to sell now. Even Chinese investors would see a rise of 18%.

No investor needs to be told that currency fluctuations can be large and are often unpredictable. Nevertheless, it is a vivid illustration of this that between 2006 and 2010, the pound sterling fell in value by 20%. Yet over the four-year period since then, the pound has outperformed nearly every other major currency, with the exception of the Swiss franc.

The downside is that those who did not get on the London luxury property ladder in that 12-month period may now find that they will have to pay premium prices to join the club. And the longer they leave it, the costlier it will become. The construction group CBRE estimates that residential property in London will appreciate on average by 30% over the next five years. In the next 12 months CBRE is expecting 12% growth in the value of the London property market, despite growing speculation that interest rates will rise in the coming months.

CBRE expects interest rates to start to increase from their current record low level of 0.5% towards the end of 2014; but anticipates further capital growth in the UK housing market, led by gains in London and southern England, on the back of a chronic housing shortage and a rapidly improving domestic economy.

Jennet Siebrits, CBRE’s head of residential research, says: “The sharp house price growth over the last year is typical at the start of a recovery, due to the release of pent-up demand. This rapid rate tends to subside as recovery becomes established.”

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