The four months following the decision by the United Kingdom to leave the European Union have seen volatility in financial markets and doubt about the future trajectory of the UK, and particularly London, residential property markets.
Prime Minister Theresa May confirmed this month that the UK's official divorce from the EU will begin by the end of March 2017, a move that triggered the pound to drop to historic lows against some currencies. As a result, many Asian investors are considering their existing or future investments in London's property market.
"The London residential market has performed well for investors over the last decade. Rents have risen, values are up and the economy has grown at a decent rate. However, with the UK set to be out of the EU by 2019, many Asian investors with property in London are wondering what's the best thing to do: get out, hold on or invest more," says David Green-Morgan, JLL' s Global Capital Markets Research Director.
A new research paper by JLL outlines six key points to consider when making decisions about London residential property investments:
London is underprovided in housing especially below the £2 million mark. Government figures estimate that there will be a large annual shortfall between supply and the forecast 20-25,000 housing units needed each year for the next four years.
London is now one of the world's most important tech hubs with the technology, media and telecom (TMT) sector being the biggest new occupier of office space in the last seven years. This means that more people are moving to London to work. In fact, the city's population is set to rise by almost a million people by 2020, creating further demand for housing.
According to a wide range of indices, London tops the rankings in terms of business environment, financial sector development, infrastructure, human capital and overall reputation as one of the top cities in the world. The UK's flexible monetary and fiscal policy has made it a target for global capital, creating economic growth and employment across a number of sectors.
The UK economy, which has grown strongly in recent years, is forecast to outperform the rest of Europe and the Eurozone, despite Brexit. Noises from the government indicate that the Chancellor of the Exchequer's Autumn Statement in November will provide an additional economic boost.
The devaluation of the pound could offer a once-in-a-generation entry point for new and experienced investors, though historic lows against many Asian currencies are unlikely to last for a sustained period of time. Compared to other developed markets – including Hong Kong, Sydney and Singapore – London is competitive in terms of transactional and holding taxes.
The situation will evolve but irrespective of the outcome of negotiations with the EU, the UK will continue to be one of the most important economies in Europe and globally.
According to Mr Green-Morgan: "Right now for investors it's important to trust your instincts and watch the fundamentals. Based on our data, we believe there are more reasons to buy and hold than sell when it comes to London property."
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