4 reasons Singapore property investors should be UK confident

4 reasons Singapore property investors should be UK confident

Brexit uncertainty is naturally prompting caution among buyers. But here’s why Singaporeans can be confident  ̶  and why they should act now.

“The thing is, I don’t know the implications in the long-run.”

Interviewed recently by Channel News Asia, this was Mr Calvin Yeo, a Singapore-based property investor, explaining why he is currently monitoring the UK property market following the country’s Brexit vote as opposed to buying into it at the moment.

He’s absolutely right. No country has ever left the European Union before, meaning Britain will be the acid test. All that is known thus far is that the UK will begin negotiations that will formally begin the country’s exit from the single market in March next year.

Singaporean investors are traditionally cautious, and it’s only natural, therefore, that Brexit has seen more buyers take their time before jumping into the UK property sector.

But investors should be confident – and they should seize the opportunity that’s currently available in Britain.

Here are 4 reasons why confidence should replace caution for Singaporean investors:

1.      The fundamentals that underpin the UK’s economy and property market remain unchanged since Brexit

Demand for property in the UK is high, while supply of is low. This has not changed since the outcome of the referendum on June 23rd.

Similarly, given that Britain hasn’t actually left the EU yet, nothing has changed from an economic point of view, either.

While the pound has fallen to a 31-year low, something that the country’s leading economists and banks were prepared for upon a vote for Brexit, and financial markets have fluctuated wildly over the last few months, its performance that’s been driven by nothing more than speculation.

xe

The chart shows the sharp fall the pound suffered the morning after the vote, prompted by speculators making knee-jerk reactions. Between July and September, the pound demonstrated its renowned strength and robustness and rallied. It only fell sharply again in early October when Prime Minister Theresa May announced Brexit negotiations would begin in March 2017, an announcement that once again prompted speculation but that actually changed no economic fundamentals.

While we must wait to see what a UK outside the EU looks like, there’s plenty to be positive about. Britain will now be able to agree its own trade deals with non-EU countries around the world, and the likes of Canada, USA and China have already declared their interest in striking deals.

“The underlying strengths of the UK economy remain in place, and ultimately real estate is an investment that works best for those who pursue long-term goals.”

Knight Frank

 

2.      High yields will deliver strong incomes during short and mid-term uncertainty

Now is undoubtedly an amazing time to secure UK assets. With the pound at a record-low, UK property just got around 18% more affordable for anyone dealing in dollar-pegged currencies.

Although rates of capital growth may show signs of slowing down as Britain negotiates its way out of the EU, investors can still achieve strong returns during this period by focusing on cities with the highest yields.

Manchester, for example, is home to the highest yields in the country. With a population that’s growing faster than any city outside London and a huge 85% of inhabitants in the city living in rental accommodation, supply is struggling to keep up.

Around 4,000 new purpose-built are being demand each year, but just 1,417 new annual units are set for delivery over the next eight years. This means current stock in the city can command strong rental premiums.

What’s more, property’s low correlation to financial markets means that investors with equity-heavy portfolios will be able to rely on a strong income-generating asset even if stocks fluctuate during the Brexit process.

3.      Domestic performance heightens the need to look overseas

It’s likely that fewer Singaporeans would even be considering an international investment if their own property market was in a position of strength. But, alas, it is not.

Last month property prices in Singapore fell for a 12th consecutive quarter, extending a losing streak that is now the longest for 41 years. In fact, values have now declined by 10.9% in just three years.

Worse still is the cooling measures introduced by the government that have contributed to the losses show no signs of being eased anytime soon. On October 9th Singapore’s National Development Minister Lawrence Wong reiterated his fierce defence of the cooling measures, explaining that their implantation is not dependent on how much prices fall or rise by.

With the outlook weak, it’s now more important than ever to invest in alternative markets.

4.      Property works best for investors with a long-term mind set. And UK property can deliver in the long-term

 

British real estate is renowned for its ability to generate high returns. For example, in the nine months to September this year, 40,000 new UK property millionaires were created, while average values hit a new record high of £206,145 (S$349,310) in July.

It’s also demonstrated its ability to ride out economic turbulence in the past, too. The chart below shows how average house prices recovered following the 2008 global economic crisis.

Those that act now, before the pound undoubtedly rallies once more, will stand to gain the most in the long-term. Once more information is learnt about Britain’s future outside of the Union during Brexit negotiations, the uncertainty causing current financial fluctuations will relent and the property market will likely show strong levels of capital appreciation again.

house-price-08

Those that act now, before the pound undoubtedly rallies once more, will stand to gain the most in the long-term. Once more information is learnt about Britain’s future outside of the Union during Brexit negotiations, the uncertainty causing current financial fluctuations will relent and the property market will likely show strong levels of capital appreciation again.

DOWNLOAD YOUR FREE EDITION OF THE EBOOK:

Brexit and UK property:
How to invest in a post-Brexit market

 

 

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