Why invest in UK property?

English investors have something with real estate. Anybody with something on the side, tries to use property to create an additional income. Developers have used this enormous market to develop financing systems that do not need to pass via the banks. This has created a very rich and diversified “real estate” market.

Contrary to many other governments, The English tax man has opted to keep tax on transactions relatively low, but to tax the rental income as “additional income” – taxed at the highest tax rates. Annoying for UK citizens, but an enormous opportunity for foreign buyers, whose “highest tax rate” starts at 0%.

A higher yield
Apart from London, expected rental yields in the UK are among the highest in Europe.

In Europe, you can normally count on an annual  return of about 3% (residential) and 4% (commercial). Give or take 1%. In UK, this will be around 6-8%, with peaks to 10% for developments with some risk level. Plus of course an appreciation that is significantly above inflation level.

How is this possible? Simple: a different markt. As most rental income is taxed at the highest marginal level (at least for UK citizens), investors demand a higher yield in order to make it worth their while.

If you can find a bank willing to come up with a mortgage, you can finance this partly by bank loan, and leverage your investment with a 2-3% bank loan, up to a return on investment of 15%. A good bit higher then stocks and bonds. Let alone the savings account.

A strong economy
Despite all Brexit-uncertainty, the English economy is still growing faster then the European average. Add a low inflation, a strong financial system, a stable democracy and a currency that is one the worlds reserve currencies and you are investing in a stable economic environment. 
Currency diversification
You are investing (and receiving yields) in pounds. Difficult to predict whether the pound will be higher or lower against your own currency in 5-10 years time. But a safe portfolio is a diversified portfolio. And hence it makes a lot of sense to have part of it in UK£. .

The UK£ is today still a reserve currency (next to the Euro and the US dollar) and London is still firmly the capital of the world. And – not to forget – due to the uncertainty of Brexit, the £ notes at an artificial low exchange rate. An excellent moment to buy…

What about Brexit?
The Brexit discussion is of course a lot of uncertainty to the table. Will it be hard or soft? And what will the consequences be for the UK – and for my investment? As prices in London stabilize, they are pushed up in second-tier cities. UK hotels could see more business, as tourists spend more in UK and less in expensive Spain. Even after a Brexit, people will live, go to hotels and get old. Nobody is expecting a total crash.

On top of that, the uncertainty is priced into the ultra-cheaply pound, creating a rare opportunity to invest at a bargain price. As some people hesitate because of the increased uncertainty, others take the opportunity of a bargain.

De huizenmarkt in Londen is uitermate duur, vooral door buitenlandse investeerders die hopen op een verdere stijging.

The London house market is incredibly expensive. The rest of the county fortunately isn’t.

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