London has for a long time attracted overseas investment, with people all over the world keen to attain a slice. Now, however, it is the UK’s regional cities that are able to provide the best returns when it comes to property.
In 2012, investment from Gulf states into Great Britain surpassed £100bn, with the majority coming from Saudi Arabia and Qatar. Indeed, Qatar is already the proud owner of England’s most famous shop, Harrods; its tallest building, the Shard, and its priciest property, No1 Hyde Park.
On a smaller scale too, UK property has been increasingly attracting foreign investment. In 2012, 85% of all prime London property sales were purchased by foreigners. The vast majority of these, around two-thirds, were bought solely as investments and not for the purpose of living.
Changes in taxation on non-resident investors in local markets has meant that the prospect of investing into the UK is becoming more attractive.
Overseas investors are also now starting to look beyond the capital, with Far Eastern investors, in particular, beginning to seek high income opportunities in regional UK cities.
Student property is a particularly thriving sector and has been the UK’s number-one asset class for the past two years. This has been driven by the sustained appetite for further education, from both domestic and international students, and, with record applications for the 2014/15 academic year, this is due to continue.
The UK boasts seven of the world’s top 20 universities and, as the globalisation of education continues to pick up pace, it is becoming an incredibly important sector for the nation. Indeed, education is currently the UK’s seventh largest export industry and, according to detailed analysis of Google search data, international students could bring £12bn annually in tuition fees alone to the UK by 2020.
So why might it be time to begin looking outside of the much lauded capital, London? And what opportunities exist for investors elsewhere?
One major element of any successful property investment is demand, and this is a key reason why regional cities are producing high yields when it comes to student property. A number of regional cities, such as Sunderland, Aberdeen and Leicester, have a critical undersupply of student rooms, with as little as 13% of students having access to purpose-built accommodation. This ensures high occupancy rates and pushes up rents.
Together, this enables investors into quality student developments to achieve double digit yields, with high levels of investor security. This is further enhanced by the relatively lower cost of property in such areas.
“The higher yields of the UK’s regional cities are a big draw, particularly new developments,” according to Stuart Law, chief executive of Assetz.
What makes such investment opportunities even more attractive to foreign investors is their completely hands-off nature. This enables investors from all over the world to invest without ever having to visit the development or consider occupancy, rental collection, repairs or maintenance. The management of such properties is handled completely by professional local companies.
With guaranteed NET income periods (up to 10 years) regularly available, such services often come at no additional cost to the investors. This incentivises the management companies and gives investors the peace of mind that they will have zero fees throughout the guaranteed income period.
Despite this hassle free approach, investors still maintain complete control over their investments, with flexible exit strategies often in place.
Especially when long guaranteed income periods are in place (ideally 10 years), exiting an investment is extremely straight forward and flexible. With low initial purchase levels and high yields, investors are able to pass on extremely attractive conditions at resale. With a development having already been fully operational for a number of years, it is even more attractive to buyers as it provides both immediate and proven income.
The sustained demand for student rooms in some regional cities also ensures high occupancy and rental growth, maintaining the profitability and attractiveness of a development.
All in all, investors benefit from a flexible exit, with capital growth of up to 40% highly achievable. Although such capital growth is also sometimes achievable in London, the double digit yields that come along with it are not. Quality student properties in certain regional cities are able to provide an average return on investment (ROI) upwards of 14%.
It is not only student property, but also a wide variety of other property sectors that offer such benefits to investors. Apart-hotels, self-storage units, car parks, retail units and below market value (BMV) residential properties can also provide such returns.
With such assets available for as little as £3,750 (in the case of storage units), it is not only the super-rich who are able to benefit. For those with a bit more financial muscle, a diverse property portfolio consisting of five or more asset classes is easily achievable for less than £500,000.
As with all investments, security must be a key consideration, and it is always advised that any property developer is NHBC registered. This ensures quality and provides investors with a 10-year structural warranty on all new-build properties. All contracts should be robust and asset-backed, and thorough due diligence should be conducted prior to making any investment.
As much as the lights of London may be a draw to some, and Sunderland may be known only for their football team, investing into the UK’s regional cities can be a hugely profitable and secure venture. Source: Gulf Times
Matthew Sarson is a content and research officer at Emerging Property, a leading investment consultancy based in London and Dubai. The views expressed are his own.