UK property has become its own global asset class attractive to many individual property investors and, although this was originally concentrated on London, this has now spread to many other parts of the UK, but with a different set of characteristics.
‘Push’ factors include the need for Asian investors to diversify their investment portfolio by region, asset class and currency after significant stock exchange volatility.
‘Pull’ factors include providing a residence for a child studying higher education in the UK, for example.
The hits our currency has taken following the 2016 referendum has only made UK property more affordable for many foreign buyers. This is all backed up by the reassurances of the UK legal system, land registry and stable political environment. Our internal Brexit ructions are tame compared to the lives of many foreign investors.
Around this, an industry has emerged to build ever-growing channels of distribution and comprehension to promote UK property to foreign investors. Investors understand that, at a macro level, UK domestic housing demand significantly exceeds supply exacerbated by MMR constraints and historically high levels of immigration.
With regards to foreign nationals, where are buyers coming from?
Distribution channels have certainly targeted the Asian markets, but British expats which are paid in foreign currency, perhaps earning tax-free in the Middle East, as well as the Far East, are growing in number.
We know of boutique UK agents with offices in Hong Kong, for example, building relationships for the long-term.
There are over 3 million EU citizens currently living in the UK with London having so many French nationals that it is even attracting French Presidential candidates in person to address them in canvassing votes.
As Brexit negotiations get underway, some experts expect the pound to weaken further against major foreign currencies, such as the dollar and euro, making the exchange rate even more favourable for foreign buyers. Do you think this will increase international demand for property in the UK?
Yes, absolutely but it is also important to understand the supply-side drivers too: UK developers can obtain important levels of off-plan funding from these foreign investor markets – this has helped drive the purpose-built Student property boom. Returns of 10% on leasehold unit purchases of £50,000 - £100,000 are being offered.
Increased sales distribution of such ‘rich’ offers is probably more of a driver to Asian markets - where the currency advantage supports what is, already, a strong investment case from their perspective.
London was once almost a single city investment consideration for foreign investors. Where else are international purchases now targeting in the UK?
Although prime central London will always have its appeal, it attracts a high value but lower potential volume of buyers than other areas. The outer reaches of the 33 boroughs comprising Greater London is where a lot of the action is now. But there sufficient supply of resale housing is an issue, with price points a great deal higher than the sweet-zone of £50k-£100k for new build student or care home units for Asian buyers - often also with more appealing rental and return profiles.
The UK property rental market is booming with some northern cities, such as Manchester and Liverpool, having very foreign investor-friendly stock which are experiencing six applicants on average for each city centre letting. Leeds and Sheffield are seeing growing interest too. The fundamentals driving this demand will not change any time soon.
Distribution drivers – often Chinese nationals with links to both the UK and micro-brokers in China – are helping to popularise other UK cities by referencing the internationally famous football teams who play there cross-referenced as also being University towns.
What knowledge and skills are required by agents to take advantage of the opportunities presented by foreign nationals buying property in the UK?
Other than being open-minded and unfailingly courteous to all prospective buyers, regardless of origin, and who wouldn’t be?, this is a highly specialised market requiring some thought and endeavour to build the right connections.
It is now possible to advertise your stock globally through new portals, such as Properstar, for relatively small monthly fees. If you have the ‘right’ stock and internal support you can take that a step further and advertise on sites such as Juwai, direct to the Chinese.
Some agents see such advertising as a listing tool to help gain new instructions; ‘we can get the absolute best price for you madam as we list globally’. When it comes to the ‘right’ stock this may mean that UK agents start dealing with property outside of their normal trading parameters – you clearly need to skill-up to do that product justice.
But a word of caution, some residential developments are being built specifically for a foreign investor market not always in tune with local demand patterns. This may not bother a foreign investor who does not intend to rent the property out – his may be a ‘Plan B’ flight purchase or with prime motivation on a currency play. But the issue of ‘dark buildings’, where many flats in a new development are not occupied, remains a controversial issue amongst local UK populaces priced-out of home ownership. Reputational risks to local agents promoting such developments may accrue harming your core business.
What sort of fees can agents expect to earn by selling property abroad?
This very much depends on what you are selling, with new build having the margin to support the increased effort and marketing costs often associated with such international activity.
The typical range of commissions on offer is therefore 6-10%. But these amounts will need to be shared with buyer’s agents and other distributors in the chain if not advertising directly to and handling buyers yourself.
How can estate agents secure quality international property instructions?
The new-build product is out there; build a business case for the developer to give you an allocation and skill-up. If that is too onerous then an interesting market development for UK agents to consider is a new platform offering a separate brand and all the required components for international property sales in one place – including product supply, lead generation, closing paperwork, CRM and associated marketing & system services.
AIPP are currently consulting with this platform to provide agent training and other support services to help launch this platform in the near future. Drop get in touch with me if you would like to dip your toe in this market place; firstname.lastname@example.org.
Please tell us about the service provided by the AIPP.
AIPP was formed in 2006 focused on helping Brits buy a foreign property – still at our core today. We are based in Westminster as a not-for-profit trade association offering voluntary regulation and recourse in the international property market.
In light of the rapid globalisation of property for retail investors, we are undergoing something of a transformation and we will have a new website serving new markets later this year.
We have over 370 corporate members in 31 countries comprising agents, developers, lawyers, financial services and media companies, amongst others. We have helped pioneer connections for our members through our focus on two interrelated aspects: ‘Consumer Education and Protection’, with all our services available free to the public, and ‘Trade Business Development and Best Practice’ - our work is funded by our members.
AIPP works closely with diverse groups to include regulators and other trade bodies – particularly in Europe and Asia. AIPP are Trustees of the International Ethics and Standards Coalition, alongside many other globally-located organizations, and our UK advice is endorsed by the National Trading Standards Estate Agency Team.
*Marc Da Silva is Estate Agent Today and Letting Agent Today Features Editor. You can follow him on Twitter @propertyjourno