What Is Overseas Investment And How Does It Work?
Overseas or Foreign investments are investments made in domestic companies by a foreign investor.
It could be in the form of physical investment in buildings as a way of expanding their investment franchise to increase economic flow or purchase of buildings for a long-term investment.
With globalisation being so commonplace, foreign investment becomes a catalyst for economic growth in a country.
Foreign investment can made by both individuals and corporations. But with the sheer amount of money involved, we often see corporations capitalising on countries that are tax havens with cheap labour and an opportunity to take their business to new heights.
Most countries have favourable laws for foreign investment which leads to high capital flow and ultimately laying the foundation to a stronger economy in their country.
Overseas Investment- A Little History
Property investment has long been the most lucrative asset class in the UK for both domestic and overseas investors.
Between being the most resilient property market, affordable prices, promising capital growth and rising demand for more rental property- UK property has hit the jackpot with all the features of the perfect property market.
The investors most definitely have seen the potential and have cashed in when the market performance has been robust. According to the Property Reporter, EY’s 2021 UK Attractiveness Survey reveals the UK is perceived to be Europe’s most attractive destination for investment, with 41% of international investors planning to invest in the UK in the next 12 months.
There’s no doubt that the scarcity of properties and the rising population is driving the property sales in UK, but it is also the reason why it is the most buoyant industry.
Why Should You Invest In UK?
Compelled by a property market that never fails to perform extraordinarily well, foreign investors have continually shown their interest in the UK property throughout the years.
What is the reason, you ask?
Aside from the fact that UK property is rewarding, there is a wide array of locations for investors to choose. A Buy-to-Let investment has an average rental yield of 3.5% in the UK, but there are various regional pockets that can yield between 4-5%- higher than the national average.
Additionally, the current national average has increased by 8.9% in April 2021, while London’s is at a measly 3.3% increase- a far cry from the 16.9% in North-East England and 6.3% in Scotland.
The uncertainty that was brought about by the EU referendum and Brexit inflected various economists with a dash of apprehension about the economic performance of the country.
Especially in terms of foreign direct investment. Multiple predictions warned the investors to brace themselves for a rocky economic transition mired in colossal losses.
But what followed was a complete surprise as an increased inward investment in the student accommodation sector took total control over the property market.
All of this along with an increased rental yield and affordable prices has rendered UK the most attractive investment venture for various countries and companies.
Where Can You Invest In UK?
Traditionally people think London when they think of UK property, but there are many other cities like Birmingham, Manchester, Liverpool, Bracknell that are stepping into the spotlight and showing promise. These cities are affordable and the returns are bountiful, which is attractive to many domestic investors, let alone foreign.
Various multinational corporations are seeing this shift in market trends with these cities fighting for the second city status- a phenomenon that has been bubbling up since the early 2010s but only materialised into a stronger wave during the pandemic catalysed by the various Work-from-home mandates.
Here is P&a’s 2021 Top 3 Property Hotspots
Birmingham’s Big City Project is seeing a lot of schemes come to fruition and with the Commonwealth Games planned in 2022 and the High-Speed Rail 2 in the works, Birmingham is seeing its highest demand. Average property price is currently at £202,162 with average rental yield of 5.4%, a 30% growth in the last 10 years and an expected 14.2% growth predicted in the next 5 years.
Manchester has had robust economic growth owing to global businesses like Google, Amazon and Microsoft investing in the city by setting up offices, which has attracted a lot of young professionals to the city thereby driving the average house prices to £242,311 currently with an average yield of 5.37%. The yield is expected to increase by 15.76% in the next five years, making it a competition for the second city status.
With Liverpool’s Water Schemes estimated to create 17,000 new jobs, Liverpool is gearing up to reinvent itself. Places like the Baltic Triangle and Royal Liverpool University Hospital have had a rental yield of 8.1% and 10% respectively. While not being on par with Birmingham or Manchester, Liverpool is affordable with average price currently at £186,527 and an average rental yield of 5.30% and is expected to have a yield of 8.45% in the next five years.
You can read more about the UK Property Hotspots here!
What Is The Process Of Overseas Investment?
The UK property purchase process is notorious for its due diligence preceding the exchange of contracts facilitated by a conveyancer.
Here’s a great piece on the roles and responsibilities of a conveyancer.
Here is a brief timeline of events in the purchase of a property in UK:
- Making an offer
- Accepting or renegotiating the offer
- Hiring a Solicitor/Conveyancer
- Finalising the mortgage
- Finalising the offer and exchange of contract
- Payment of all outstanding fees
- Moving into your property
The UK property market has built quite a favourable reputation among investors by being a stable investment market and showing promise of extraordinary returns. Pretty much any investor’s daydream! But, it’s important to know the tax system to understand how it impacts their investments.
- Income tax
A compulsory tax to be paid on the rental returns of the UK property. A 20% basic tax going up to 45% depending on the return, is pretty standard.
- Stamp Duty
A compulsory tax to be paid on purchase of a property. It differs on the basis of the price of your property, but a 5% charge in common in case of BTL investors.
- Capital Gains tax
A compulsory tax to be paid upon the sale of the property. The price differs on the basis of the profit you made on sale.
- Inheritance (IHT)
A 40% charge is levied on IHT upon the demise of the landlord even if it’s under a trust (directly or indirectly)
The UK has promising market confidence with rental yields touching 10% in certain pockets as exhibited during various global crises across history.
There is a robust demand by a rising population with newfound hopes to improve their standard of living by maintaining a good balance in their lives, a collective realisation spawned by the pandemic.
This realisation has caused various regional cities in the North and the Midlands a property boom with a new wave of young professionals moving to these cities in exploration of a life that is free from the rat race that is sold to them early on.
This is the perfect opportunity for any investor out there to capitalise on a rising tide of trend that is bound to be a mainstay for the years to come.
If you are an overseas investor, we at P&A recommend you to explore all the available opportunities across various sectors. It is easy to get swayed by numbers and blindly making an ill-advised investment that is doomed to fail.
And if you are in need of advice regarding the United Kingdom Property Market, contact P&A Property Sourcing and schedule a consultation call with our experts and make an informed and astute investment with our help by your side!