As agents and developers report a surge in interest from the Far East for real estate in the UK’s north-west, what’s prompting many to ditch the capital in favour of property in Manchester?
For years, investing in UK property meant investing in London.
In many respects, it made perfect sense. London after all is the capital of the UK, the country’s financial and economic heartbeat. Home to the most luxurious homes in the most prestigious addresses and, crucially, a place renowned for delivering exceptional long-term capital gains for investors.
But things have changed, with a city 163 miles to the north fast becoming Britain’s number 1 hotspot for property investment, particularly among buyers in Asia.
So what’s prompted the change?
London has reached an affordability ceiling for many investors
Figures published in October showed that just under £20 billion (S$34 billion) was spent on property in London in the 12 months to June 2016, representing a 36% fall over the year previous.
Quite simply, London has been a victim of its own success. Savills estimates that property prices in the capital have appreciated by as much as 70% since 2008 following the global economic crisis. However, that rate of growth has eased considerably in recent years, with data released by property market analysts Hometrack in October revealing house price growth in the capital is currently at its lowest level for 20 months.
While those investors that bought during the economic downturn will be huge advocates for investing in London, the reality is that it has simply become unaffordable for those investors looking to enter the market now.
With the average London property price rising above £600,000 (S$1 million) earlier this year, combined with the reforms to the non-domiciled tax status for foreign investors and increased rates of stamp duty introduced by the government, it makes it harder for London to stack up from an investment perspective.
What’s more, recent volatility in financial markets around the world has underlined the importance of having assets in portfolios that generate regular returns through yields, too.
And it’s Manchester that currently ticks these boxes for the global investor community.
Manchester – home of the UK’s highest yields and one of the most undersupplied property markets
With average property prices in the north-west city around £166,000 (S$282,800), Manchester immediately appeals to investors looking to get the best yields, or for those looking to acquire multiple assets.
But what’s setting Manchester apart is its ability to generate a regular income. HSBC ranks Manchester as the number one city in the UK for property investment yields, with average returns 55% higher than those in London.
Key to this performance has been the huge supply to demand imbalance for rental property in the city. Manchester’s population is growing at three times the national average, while it’s also home to 60% more 25 to 29-year-olds than the UK average a demographic that’s helping to drive a shift away from ownership towards renting.
Yet Manchester has one of the most undersupplied property markets in the country. While city targets outline a need for 4,000 new rental units each year just to keep up with demand, only 1,417 units are currently set for delivery annually over the next eight years.
And with Manchester forming a central part of the government’s Northern Powerhouse plans, which prompted a state visit from Chinese Prime Minister Xi Jinping in 2015, the long-term growth prospects for Manchester’s property market are equally lucrative for investors as the returns available in the short and mid-term.
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