When we look back at 2016 it is difficult not to focus on the volatile political scene and the prevailing economic difficulties. This is a year which saw the UK electorate vote to leave the European Union, propelled Donald Trump into the presidential office and saw Chinese investors continue their march to become the most powerful overseas investors in real estate. So, what did we learn about property investment in 2016 which could help us in 2017?
Property investment and expecting the unexpected
The UK FTSE 100 index finished the year at a record high despite the prevailing economic difficulties in the UK, Europe and further afield. Even though the UK economy continued to expand in 2016, with more detailed figures to follow, it has been a volatile year. It is only really over the last few weeks that the growth in property prices has begun to show signs of weakness and even then this is not across the board. The London market is currently headline news, in light of the Brexit vote, but London property prices have still have increased by more than 3.5% during 2016.
Historically election opinion polls were relatively accurate but of late these have been called into question and changes will be made. So, it is highly likely that in the future markets will expect the unexpected to a greater degree than they have done in years gone by. They will not take opinion polls for granted, not assume the electorate will take the traditional approach, so there may be a greater risk element factored into property prices – helping investors.
Continued shortage of new build properties
Those who follow the UK property market, and others around the world, will be well aware there has been a massive shortage of new build properties for some time. Time and time again politicians have promised to invest more money in new build properties but more often than not there is much talk and little action. We may see an increase in new build numbers in 2017 but in reality we are hundreds of thousands of properties behind where we should be. Current new build numbers are also behind the curve so quite how governments of the day will catch up remains to be seen.
The obvious benefit of a property market which is constantly starved of new build properties is a support for current prices. To what degree this support has assisted today’s prices is debatable but it must be a factor.
London in particular has attracted more than its fair share of overseas investors. Despite ongoing difficulties in light of Brexit, the reduction in sterling exchange rates will continue to make London and the UK extremely attractive to overseas investors. Whether some investors, such as the growing number of Chinese property entrepreneurs, hold back until the path towards Brexit is clearer remains to be seen. What is certain is that overseas investors will play a growing long-term role in the UK property market no matter the terms of the eventual Brexit deal.
The Chinese authorities have recently announced plans to restructure the country’s property market. Quite how they will rebalance capitalism/socialism remains to be seen but what does seem certain is that more Chinese investment will find its way into the UK real estate market. It is also worth noting that China is becoming an ever greater presence across the globe real estate market and again this is likely to continue.
During 2016 we have learnt that property markets do not always follow the path of economies, overseas investors are having a greater influence on real estate markets and an acute shortage of new build properties will always offer a degree of support to property prices. Investors in the UK may well target income producing property assets as opposed to pure capital gain plays in 2017. When you bear in mind areas such as the North of England can offer rental yields in double digits there is certainly good value out there for those prepared to do their research.
Even against the difficult economic backdrop and political shenanigans the vast majority of experts believe that UK property prices will continue to rise in 2017. Regional performance will be varied, investor trends will adjust to the underlying economic/political backdrop but those predicting a doomsday scenario for UK property in 2017 may need to think again.