London house prices rose by an average 11.6 per cent last year, earning the typical owner £50,000 (Dh298,000) in 12 months. With rents also spiralling upwards, it’s no surprise many UAE residents are now buying property in the UK capital as part of their investment portfolio.
The prospect is proving especially tempting for British expats.
London’s stable political climate and transparent legal and financial systems have made it a target for many overseas investors looking to park their wealth.
According to the estate agent Knight Frank, buyers from outside the UK bought 49 per cent of all properties worth more than £1m in central London last year.
The rival estate agent Savills says that in 2012-13 buyers from the Middle East were the third biggest purchasers of new flats in prime London, accounting for 19.4 per cent of the new-build market.
But when you live more than 5,000 kilometres away from your investment, how can you go about finding a place, let alone navigate the sticky processes of buying the property, letting it out and dealing with problems?
Jane Sugar, a marketing manager and mother of two, has lived in Dubai for eight years. Last year she and her husband bought a three-bedroom house in Acton, West London for around £700,000.
“It was a difficult process,” the British expat says. “We bought in London because we think London property is a good investment and that’s ultimately where we want to move back to, but it has taken a long time – probably around two years – and been quite problematic.”
The couple looked at property websites to gauge what they could afford that would provide the right facilities such as good state schools and infrastructure.
“All the good property was snapped up within a couple of days and some of the best ones were just not getting put on the market at all. Sometimes sellers wanted a response within a couple of hours and because we were here we just couldn’t get back to them in time,” Mrs Sugar adds.
“They would go to the properties for us and take photos and videos and they had good contacts with local estate agents as well as lettings agents and mortgages brokers,” she says.
Ironically though, the couple ended up buying a property they had looked at themselves.
Financing proved a headache, with the first mortgage falling through. And even though the family hired a local lettings agent – to whom they pay 8 per cent of the annual rent – to find tenants, a first set of tenants walked away because the Sugars didn’t act quickly enough to confirm the tenancy. Upkeep and maintenance have also proved costly, with the owners already paying out to fix a leak.
Nonetheless, Mrs Sugar estimates the rent just about covers the costs of keeping the property even accounting for fees, insurance and renovations.
“After consultation, we made a decision that London best suited our long-term goals and risk matrix,” he says. Although he knew the area he wanted to invest well, the purchase was far from straightforward. It took three months to find a suitable property and a further seven weeks to complete.
“All of the proofs of address were somewhat complicated,” he says. “The UAE postal system was hard for the UK to understand, having all utilities and rental agreements in my company’s name created some issues.”
He is renting the property out via a letting agent and anticipates a 5.5 per cent yield with capital values to increase 5 per cent a year for the 10 years he intends to hold the property. His exit strategy, he says, depends on how UK rules regarding capital gains tax for overseas landlords pan out in the coming years.
Nicola Gregson, a Dubai-based public relations manager, has a similar story to tell. She and her family have been renting in Arabian Ranches since 2007 and decided to buy a house in Manchester in the north-west of England.
“The BBC has recently relocated there [from London], the area has experienced significant property growth, and our families are based around this region,” she says. “We did look at the UAE but thought property prices had gone up dramatically in past 12 months and we were a little unsure about the long-term stability of the market here.”
Funding the purchase was complicated. Because Mrs Gregson had lived overseas for so long, the only option was an expatriate mortgage – something few UK lenders offer. In the end, a niche building society was willing to help.
“It was more frustrating than complicated,” Mrs Gregson says. “We were putting down a sizeable deposit on the property, but still there were many lenders who weren’t willing to provide a mortgage to us.”
The couple are letting the property out without a letting agent, making a 7 per cent yield, and say the investment is part of a 20-year financial plan.
Property advisers advise anyone buying a UK property to be clear about what they want.
“We ask people to decide whether they are looking for a house or a home,” says Jackie Fitzgerald, founder of the specialist expat buy-to-let advisory Homes Or Houses. She is based in Newcastle but spent many years as a Gulf expatriate before setting up her agency.
“If they are looking for a home – somewhere to ultimately live themselves – then they will already have a good idea of where they want to be; that can be a very emotional decision. But if they are looking for an investment to let out then it requires a more cool-headed business head.”
She specialises in buying and letting out properties in north-east England that can cost a fraction of the price of those in London.
“These have higher rental yields, few void periods and also avoid maintenance and repair issues,” he says. “The criteria for selecting good investment properties is generally: property within 30 minutes of Central London, no more than 10 minutes from a tube or railway station and amenities such as close to schools, hospitals and medical centres, restaurants and supermarkets.”
However even those considering property lets in the capital have options outside of the centre.
“Despite having most properties on our site in Zone 1 of central London, enquiries per property is high meaning that it is still a safe bet for investment if that is a factor in a purchasing decision,” says Kate Stinchcombe-Gillies, spokesperson at specialist lettings agency Holiday Lettings.
“Fulham, Clapham and Wimbledon are popular. In East London, Stratford remains popular, but in the last four weeks Hackney has emerged as a new hotspot for us. East London has a high enquiry-to-property rate, which means that investing in property here would be a wise move in the holiday rental market. Properties in this area start at just under £600 for a week. North London is the most in demand compared to how many homes are available for vacation rentals,” she adds.
lbarnard@thenational.ae
