Wealthy UK Property Investors Look Abroad for Alternatives to London

on Oct 9, 2012

With the London real estate market stagnating, wealthy investors are looking for alternatives abroad, The Sunday Times reported on 7 October 2012. And while many international investors regard London as a good store of value, UK buyers themselves are increasingly showing interest in overseas properties. Domestic property investors with a slightly more adventurous spirit are again casting the net further in an attempt to get better value for money and better returns. The UK market is either stagnating, outwith central London, or extremely expensive inside the capital’s most desirable areas where prices have been pushed up by wealthy foreigners pouring cash into the perceived safe haven.

The Sunday Times quotes data by the building society Nationwide, which recently indicated that average house prices in Britain went down by 0.5 percent in the three months to the end of September, relative to the previous quarter. In London, the observed quarterly change was a drop of 0.4 percent. The
Nationwide figures correspond to data by Rightmove (LON:RMV), operator of Britain’s biggest property site, showing that average asking prices in England and Wales went down by 0.6 percent in September, following a 2.4 percent decline in August.

!m[](/uploads/story/544/thumbs/pic1_inline.png)And while the third quarter figures may be attributed to the traditional summer lull in the UK property market, Nationwide expects that residential house prices in Britain will continue to be subdued or even fall, whereas the consultancy company Capital Economics projects a 10 percent drop in rental income from central London office space over the next two years. “Over the next 12 months, it is more likely than not that demand for office space will fall, thereby reducing rental values,” notes Kelvin Davidson, property economist at Capital Economics, as quoted by The Sunday Times.

It is no wonder therefore, that interest in overseas property is soaring, with Knight Frank reporting that UK investors are the second most common buyers of apartments in Dubai. Data from the overseas homes specialist Select Property show that house prices in Dubai have increased by an average of 14 percent over the past 12 months, indicating that the Dubai property market is rapidly recovering from the 2008 financial crisis. The Financial Times recently reported that both Dubai and Abu Dhabi were trying to revive their property markets, with Dubai considering new visa regulations to kickstart its own real estate market without relying on federal measures.

The Sunday Times reports that Moscow is also increasing in popularity, with data by Savills (LON:SVS) showing that the Russian capital has produced consistently strong rental yields, up 56 percent, since June 2005, compared with an increase of 15 percent in London. Yet, despite the lucrative profits from rental activities in Moscow, there are also certain risks mostly related to regulation and security of investments in Russia.

UK investors also look to the other side of the Atlantic, where prices have started picking up. Recently, The Times reported that the Standard & Poor’s/Case-Shiller index of home values in 20 leading cities in the US increased by 1.2 percent in July, marking the strongest annual growth in two years. Property prices in New York, however, are reported to be lower than they were a year ago.
Sydney is yet another popular overseas property destination, with prices being 25 percent higher than they were at the start of 2007 and look set to continue rising. “Australia is booming, according to my colleagues out there,” notes Christopher Brigstocke, partner at Squire Sanders, as quoted by The Sunday Times. Although, on a more cautious note Australia has elsewhere on this portal been earmarked as a potential real estate “bubble”.
In the meantime, London remains a hotspot for foreign investors, with 57 percent naming the UK capital as their top choice, as indicated by a report by property consultants Cluttons.


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