Brexit is dominating the national debate in the UK at the moment, and more often than not the discussion around this thorny issue has taken on a negative tone.
There is a lot of insecurity about what leaving the EU could mean for British businesses and the economy, and understandably so, particularly when the terms of the withdrawal are yet to be finalised.
As far as real estate investment is concerned, there are questions being asked about what Brexit will mean for the property market. It’s true that there is a degree of uncertainty on this front, but looking at some of the sector’s core trends and recent track record, there is also a strong case for investors to feel optimistic. Here are some of the main reasons why…
Strength of demand
For buy-to-let investors, tenant demand is a critical deciding factor in the success of their investment, since it fuels regular rental yields and minimises the risk of property void periods.
Various factors have contributed to rising demand for housing on the private rental market in recent years, including the growing student population. Britain’s higher education institutions traditionally hold powerful appeal for people in the UK and further afield, and this remained the case in 2018, regardless of the country’s impending departure from the EU, according to UCAS figures.
In thriving university cities such as Liverpool and Newcastle, student accommodation has proven itself to be a lucrative asset class, and this is a trend that shows no signs of abating in the years to come.
Looking beyond the student segment, the private rental market as a whole is witnessing growing demand from tenants. One of the main reasons for this is the demand/supply imbalance, with the delivery of housing failing to keep up with the number of people looking for somewhere to live.
As Jerald Solis, Business Development and Acquisitions Director at Experience Invest, noted in an article for Landlord Today, the government has responded with a plan to build 300,000 new homes each year by 2022.
This will provide a range of new off-plan developments and buy-to-let opportunities for investors, particularly in the growing build-to-rent sector.
Growth in the regions
In the past there has been a tendency to focus on London as the engine of the UK housing market, but it is now becoming increasingly clear that regional investment markets have just as much to offer as the capital.
Cities such as Liverpool, Manchester, Newcastle and Birmingham are thriving, offering investors the twin benefits of relatively low entry prices and clear potential for strong capital growth after Brexit.
London, meanwhile, has experienced sluggish price trends in recent years and was struggling to maintain growth at the end of 2018, according to the latest Your Move House Price Index.
Of course, the capital continues to hold powerful appeal for young, career-minded individuals, but prohibitively high housing and living costs are leading more people to search for accommodation within travelling distance of the city. Luton, which is home to off-plan developments such as Imperial Square, is one location that appeals to this group.
The potential for ongoing growth in these commuter hotspots is another encouraging sign for property investors, since Brexit won’t stop people from wanting to work in London and live within easy reach of the capital.
A positive price outlook
UK property is traditionally seen as a safe-haven investment, and one of the key reasons why is the reliability of long-term growth in prices. The market has frequently demonstrated its resilience and ability to either maintain stability or grow in even the most challenging of circumstances.
At the time of the global financial crisis – between Q2 2008 and Q2 2009 – the housing market went through a period of substantial price deflation, for clear economic reasons. Between the end of 2009 and today, however, house prices have increased consistently, with the exception of a few small drops in 2011 and 2012, according to historical data from Nationwide.
At the end of 2018, the average UK house price was £214,178, an increase of 31 per cent from the figure of £184,131 recorded in Q3 2007, before the financial crisis took its toll. This shows that investors who held firm and kept faith in the property market during the most difficult years of 2008 and 2009 were repaid in the long run.
Looking ahead to how the property market will fare after Brexit, there is cause for confidence that prices will continue to rise, delivering clear capital growth benefits for buy-to-let investors. Savills has forecast an overall increase of nearly 15 per cent from 2019 to 2023.
So while there are still many questions to be answered about Brexit, property investors have every reason to feel positive that the assets in their portfolio will show resilience to challenges and deliver worthwhile, long-term returns.
Follow Experience Invest to find out more about current UK property investment opportunities and real estate news.