If you live in the UAE and have saved up a sizeable amount of money, you may have – at some point – considered investing it abroad. For those looking to buy a second home or simply seeking alternative real estate that can generate some extra income, the process of finding the right property can be difficult. Add to that, the complexities of international legal and tax systems, and you could end up with more questions than answers. To shed some more light on the topic and specifically about the UK as a potential investment market, we talk to Adam Amode, Senior Analyst at Hanover Square Real Estate.
What are some of the options that UAE residents looking to invest in property abroad could consider?
The opportunities are endless, which is why some investors feel daunted by the prospect of investing and are discouraged. There are numerous countries where people can invest.
Many fear there is a property bubble in Dubai, I do not feel this is the case, the measures introduced by RERA have done well to stabilize the market, the annual price increases of 20-30% seen in some areas of Dubai in 2014 are unsustainable. Now the market is stable in the lead up to EXPO 2020. Dubai property still has many benefits and rightly has a place in a real estate portfolio. However diversification both geographically and also in terms of asset class does provide investors with greater security and better peace of mind.
The UK represents a good alternative for residents looking to diversify their portfolios by investing abroad. The Dirham is pegged to the dollar, meaning a period of dollar strength such as now gives investors from the UAE greater purchasing power. So now could prove to be an opportune moment for UAE residents to invest in the UK.
Why would UAE residents consider investing in UK real estate?
The UK is currently going through a severe housing shortage. The latest government figures suggest the UK needs to build around 240,000 new houses per year to meet demand. Last year, only around half of that was built. For many years the UK has not built enough new homes to keep up with demand. This, coupled with a growing population has significantly increased demand for housing which outstrips supply. Furthermore, the increasing house prices, limited access to credit and sizeable deposits required for first time buyers means that the current market conditions represent a good opportunity for investment.
In addition to the high demand for housing, below are some of the key reasons why the UK could be a strong market for investment.
- A Strong Rental Market: The rental market in the United Kingdom is growing, as many as 30% of the population live in privately rented housing. There is a real demand for suitable rental accommodation.
- Stability: The United Kingdom is a member of the G8 group of countries, and a founding member NATO and one of the original Member state the United Nations. It is generally regarded as one of the safest and most stable countries in the world to invest.
- Secure Legal System: The UK Legal System is well established and is considered fair and transparent, which is a solid platform for wealth building and a secure environment for capital protection. In some instances, the UK property market is seen as a safe haven for investment compared to some emerging markets. The UK legal system ensures that buyers, sellers, landlords and tenants are well protected. Which means risks which would be more apparent in other markets, are well mitigated.
- Strong Historic performance : The UK has been no exception to price fluctuations that we have seen globally in recent years. This being said, UK property still has strong potential for long term capital growth. Historically, property values have doubled every 10 years. This capital appreciation coupled with high rental yields make a compelling argument. It is also important to note that UK property has also outperformed a number of major asset classes with much less volatility.
What are the rules and regulations governing buying property in the UK if you are a foreigner?
Generally, there are no restrictions on foreign ownership for UK property, investors will have to comply with standard anti-money laundering regulations. A solicitor is appointed so the purchaser has local legal representation to handle the transaction.
Many Citizenship by investment programs around the world involve investing into real estate to obtain the nationality of the country. The UK system is slightly different, you must have at least £2m, (approximately 10.9 million Dirhams) investment funds available to apply for the tier 1 investor visa – investment is made into government bonds rather than real estate.
What are the costs of buying a property in the UK?
Property purchases are subject to Stamp Duty Land Tax (SDLT). Stamp Duty is charged on all purchases of houses, flats and other land and buildings. On residential property purchases, you will have to pay:
- nothing on the first £125,000 of the property price
- 2% on the next £125,000
- 5% on the next £675,000
- 10% on the next £575,000
- 12% on the rest (above £1.5 million)
A report in January showed the average house price in England and Wales, was £179,492. The average in London is around £458,000. This means if you were to buy a property at £458,000 the stamp duty land tax would be around £12,900
If you were buying a property in the UK for £120,000, this falls under the stamp duty land tax threshold, so there would be no Stamp duty payable. The buyer would have to pay legal fees around £1,700.
[Related: Will pensions come to the UAE?]
Roughly, what are the returns on property in the UK for buyers?
Regional yields will vary, as will the returns on commercial and residential property. London house prices have rocketed, with rental prices slightly slower to catch up, generally investors in London will experience a period of yield compression. As an example, residential property can yield from 7-9% in cities such as Manchester.