Following David Cameron’s comments, here’s why the Northern Powerhouse will raise returns for south-east Asian investors.
As he stood before a plethora of dignitaries, business professionals and local journalists in Singapore this week, David Cameron delivered arguably his biggest rallying call since the UK General Election:
“We want to rebalance our country and we want Singaporean and other south-east Asian investors to help us do it. That is what the Northern Powerhouse is all about.”
The Prime Minster was joined by Business Secretary Sajid Javid and a number of delegates and civic leaders from firms and authorities from a number of northern cities, including Manchester and Leeds. The powerhouse for the north of England it may be, but it seems that investors from across the world have a significant role to play in it.
So as Mr Cameron asks to “get more trade flowing” from “the North Sea to the Singapore Strait,” what can an investor in the Far East get from making a property investment in a city in the north of England that’s about to receive huge levels of economic backing?
Stability from fluctuating markets
This could offer a great option to help escape the current volatility of Asian investment markets.
Many south-east Asian investors are desperately seeking alternative assets, with financial news in recent months having made for grim reading:
- Shares in China crashed by almost 8.5% in one day in July – the biggest daily drop in eight years
- The expected bursting of the Hong Kong property market bubble may now finally happen – something Moody’s highlighted as the number one major economic fear in its Asia-Pacific outlook
- The Singapore property market is experiencing its worse downturn in 15 years, and prices may fall by as much as 5% by the end of 2015
This has led many investors in the region to take their returns and leave. So could these plans in the UK provide the answer they’ve been looking for?
56 billion reasons to invest away from London
The Northern Powerhouse is a vision to continue the recent growth of the economies of cities across the north of England by £56 billion. Creating a large area of international trade and business outside of London should help to alleviate the dependency on the capital and create a bigger, stronger UK economy.
For many international investors, London is the traditional go-to haven. With its iconic cultural landmarks and proven track record of strong capital gains, it’s only natural many overseas investors look to buy in some of the UK’s most popular and exclusive addresses.
But many investors have started to realise that the best yields may not necessarily be found inside the M25. Property prices have started to hit an affordability ceiling, whilst it also remains to be seen just how hard the recent changes to the non-dom residential status will hit the London market, if many international investors decide to leave.
That’s why the Northern Powerhouse can trigger more people to realise the opportunities available for a high-yielding investment in other areas of the UK. As Mr Cameron declared: “I really would encourage you to look at Britain in a new way. There’s plenty of investment opportunities, of course, in London and the South East – London, this amazing global city – but look again at the North.”
Property markets that are already driving returns for investors
Investors who venture to any of the big northern cities for the first time right now can be assured that they won’t be entering developing, uncertain markets. Although the effects of the Northern Powerhouse will begin to impact on local economies in the coming years, the current performance of property markets in the northern regions should already enamour investors.
The historic, medieval city of York, for example, has been identified by Savills as the best city for capital growth in the UK, with sustained demand and strict planning laws restricting supplying helping to grow prices.
Sheffield in South Yorkshire, with its young population thanks to high graduate retention, has one of the fastest growing rental markets in the country, which Knight Frank attributes to “the limited number of high-quality centrally-located schemes, especially when compared with other regional centres across the UK”.
But perhaps the most appealing city to a south-east Asian investor will be Manchester, the city that lies at the heart of Northern Powerhouse plans. Known by millions around the world for its two high-profile football teams and its rich culture, HSBC currently ranks Manchester as the top UK city for investment.
Manchester is home to 80 FTSE 100 companies and has one of the busiest airports in Europe. Its thriving economy has already driven rental demand, leading to rent growth 13 times the pace of that in London in recent years.
This alone should appeal to an investor seeking high-returns in a stable, growing market. So how will the introduction of Northern Powerhouse plans accentuate this performance further?
More jobs and growing populations will drive yields for investors
Integral to the government’s plans to create this economic powerhouse are a number of proposals to encourage more businesses and corporations to set up bases in northern England. These include:
- Creation of enterprise zones with favourable tax conditions
- City Deals agreement – granting devolved powers to mayoral offices for greater control over local government spending in areas such as transport and planning
- HS2 – a high speed rail-link that will dramatically reduce travel times between London and cities across the north (journey times between Manchester and the capital will be halved to just one hour)
- £1 billion redevelopment of Manchester Airport – increasing annual passenger numbers by 10 million and connecting the city and the north of England to more locations in Asia and the east and west coasts of America
Ultimately, more businesses that buy into the plans and relocate to the north of England will help uplift visitor numbers and create new jobs. As a result, this will place a greater emphasis on local property markets and, with housing stock levels in the UK at record lows, will ultimately drive rental prices and yields for investors.
With this upward curve in local property markets that the Northern Powerhouse is expected to create, is the best time for investors to take Mr Cameron up on his offer now for the best long-term returns?