Despite measures and additional taxation to curb overseas investors in UK property, the asset class still holds great allure for a number of reasons.
On 1 August 2022, a new register of overseas entities was launched in the UK. This means anyone investing in or acquiring property in the UK from abroad will need to register with Companies House.
The aim of the register is to prevent individuals or companies buying property with illicit funds, but some believe the additional paperwork could serve as a deterrent for some legitimate overseas investors.
However, David Hannah, group chairman at Cornerstone Tax, believes the UK property market will still provide enough of an attraction to foreign buyers for myriad reasons, as it still presents an “exciting opportunity”.
Big demand from overseas investors
Hannah points out that the UK property market is very much an international market, and it can therefore be affected by geo-political events all over the world.
“Even if domestic demand cools, I think international demand will increase and the UK market will be affected because of it. I don’t think foreign investment will be overly deterred by the new rules coming into place on 1 August.
“Property in the UK represents an exciting opportunity for foreign buyers because of the drop in the value of the pound.”
The historic house price growth has always provided an attraction to overseas investors, gaining the sector a reputation as a safe haven as it generally shows less volatility than many other asset classes.
In recent years, this growth has been even stronger due to a range of contributing factors.
Hannah comments: “UK house prices continue to rise at a staggering rate domestically, being pushed higher by factors such as the influx of oversea investors.
“In the past, factors such as the stamp duty holiday have caused more people to consider buying property. However, due to the increase in average house prices, it has made it more difficult than ever for buyers to purchase their first property.
What’s in the pipeline?
Recent data revealed that overseas investors now own around £90.7bn of property in England and Wales. Around half of this (£45.3bn) is concentrated in London, which has historically attracted the most attention from foreign buyers.
This was according to research from Benham and Reeves, which also named the south east and the north west as the top two property investment destinations for those living abroad, after the capital. Overseas owners have around £15.6bn tied up in the south east, and £7.6bn in the north west.
In total, according to Benham and Reeves, 247,016 properties across England and Wales are owned by overseas investors. As well as the highest value of properties, the highest number of these can be found in London, with 85,451 foreign-owned.
One of the biggest draws in recent years has been the falling value of the pound, which makes it cheaper for overseas investors buying property here.
A challenge for anyone buying property right now in the UK is the supply gap, as less sellers have been coming to the market.
Hannah notes that the 24% rise in prospective sellers putting homes on the market offers hope that this trend could be easing, “thus causing a more manageable supply and demand level and potentially slowing the rapid rise of property prices”.
The register will also be applied retrospectively to property bought up to 20 years ago in England and Wales and since December 2014 in Scotland. UK property owners who live overseas should ensure they are up to date on the latest requirements.
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