Advice and Opinion

Weak Pound Indicates a ‘buy now’ Option for SA Investors with Sights Set on UK Property

As post-Brexit calm starts to return to global and United Kingdom markets, South African investors with their sights set on UK property can consider 2 options: continue to make the most of a weakened British pound by purchasing property at an attractive price; or put their buying decisions on hold joining some other global investors in a wait-and-see game for more stability and certainty.

“The fall in the pound’s value has actually created a solid opportunity for South African investors to purchase UK property at reduced prices“, says IP Global’s head of Africa, George Radford. “The currency’s plunge to a 30-year low has been advantageous to all our international clients and is likely to remain low over the short to medium term.”

He adds however that any volatility in the UK property market will be relatively short term. So, potential entrants to the market should act now. They will also quite likely reap more benefits than those who choose to wait for a few months in search of a little more stability and certainty.

Radford adds that he does not foresee that Brexit’s impact on mortgages and bank liquidity for lending purposes would pose a problem for South African investors. In the longer term, foreign investors could even benefit from a wider array of mortgage finance products as the UK mortgage market would potentially no longer be regulated by the EU.

Interest rates are also set to remain low, with the Bank of England considering a cut in the near future, and no increases expected until at least 2020. For foreign investors seeking UK mortgages, an imminent base rate reduction to 0.25% would be very good news.

In general, IP Global believes the UK will remain a consistent, steady and safe destination for real estate investors. The recent confirmation of Theresa May as British Prime Minister and the depth of experience she brings to this position has already contributed considerably to bringing calm to the markets, with the FTSE recovering to surge past its post-Brexit low.

Over the last 20 years, London property has offered consistent, steady profit when held over a five-year period – even during the 2008/2009 global financial crisis. Furthermore, IP Global clients who invested in London between 2009 and 2013 made a combined £116 million in capital appreciation by April 2016.

IP Global’s senior investment manager Hamish Pound believes “Even though it will take time for investors to regain confidence, we foresee resilience and strength of the UK market in the longer term. However, in the medium to long-term the UK will remain one of the world’s strongest and most secure economies. In our view, the longer-term trajectory for the UK property market is onward and upward, with some turbulence in the immediate term.”

Further good news for South African investors is that the supply and demand imbalance in housing in the UK will continue to drive up prices in the medium term. The UK requires that 250 000 new homes be built annually to keep up with the demand. With only 156 140 built last year, there is certainty that demand for residential property in key locations will continue to soar.

In addition, housing supply over the short to medium-term is likely to be further constricted by political uncertainty, property acquisitions by opportunistic buyers while the pound is low, a shortage of European Union labour, and in the long term, rising construction costs.

Radford says he expects the last few years’ substantial growth to decelerate slightly over the next few months whilst the dust settles. “For the rest of this year we expect low single-digit growth instead of double-digit, but this will pick up again in 2017 and beyond.”

So, in this uncertainty and the likelihood of the process of the UK renegotiating its status in the EU taking up to two years, there is in fact now a window for African based investors to access the UK market and benefit from some preferential terms.