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Why Invest for the Long-Term? Off-Plan Investment for UAE Investors

Madison House Off-Plan

Key Findings:
The majority of UK mortgage enquiries have come from the UAE during 2019
55% of international respondents think the market will be ‘good’ to ‘very-strong’ in the next 18 months
UK property has historically shown that over a 15-year period it has the potential to double in value

Research shows that 96% of UAE investors preferred the UK during 2018 and it looks like 2019 is going to provide the same story, as a weakened Sterling presents international investors with more value. Despite political uncertainty, the UK remains a relatively robust market that is still appealing overseas. But how can Off-Plan investment benefit UAE investors and why invest for the long-term?

Benefits of Off-Plan Investment for UAE Investors

Buying Off-Plan property typically means purchasing during the construction phase at a lower price to the actual value of the completed development. This makes it incredibly attractive for overseas investors as it presents the opportunity to buy at a lower cost with favourable exchange rates. While many investors overlook Off-Plan because it seems complicated compared to a traditional Buy-to-Let investment, it offers its own unique advantages despite following a slightly different purchase process.

Off-Plan property presents the option to purchase either a new-build or refurbished unit, ensuring a contemporary design with the modern features that a renter has come to expect. This could include energy-efficient appliances or eco-friendly specifications, meaning lower running costs. As renters increasingly look for sustainability in the home, there’s an argument to be made that more environmentally-conscious new-build properties have a reduced chance of voids and the opportunity for higher rental prices.

Finally, Off-Plan is versatile enough that it can be adapted to multiple strategies, although it does generally favour a long-term strategy. The most common method is to start building capital appreciation during the build period before generating consistent rental income post-completion, income that can then be reinvested to secure passive income in later life. 

Favourable Foreign Exchange

For UAE investors, the UK market represents the opportunity to get an exceptional deal, stretching local currency much further given the weakness of the Sterling. With the sector still recovering from initial Brexit uncertainty, consider the following example using dollars and UAE Dirham: As of 2016, the average London property would have cost $735,294 (Dh2.7m). Today the same property costs $621,300 (Dh2.2m) – a change of $113,994 based purely on exchange-rate fluctuations.

With research by Skipton International showing that the majority of mortgage enquiries in 2019 have come from the UAE, it seems that as domestic buyers delay on investing there’s a clear path for savvy international investors to enter the market. 

It could also be argued that this increased number of mortgage enquiries is being driven by international financing being less of an issue. As specialist lenders grow in popularity and high-street banks join the market, there’s much more variety in products for overseas investors. Even building societies are becoming more open to accepting foreign currency, opening up avenues of Off-Plan investment for UAE investors. This mitigates a traditional challenge for international investors, ensuring they have the necessary financial support to make their investment.

Dubai Skyline

Choosing Your Hotspot

Of course, as with any property investment, all of the above is wasted if you don’t choose the right location. An old adage is that property lives and dies based on its surrounding area. Choose an area with upcoming development or regeneration and you’ve put yourself in an excellent position to harness potential growth.

The current UK market is an excellent example of how emerging markets are driving better returns than the traditionally popular London investment, achieving better yields while remaining relatively affordable. The London Commuter Belt is particularly in focus right now because of the transport links it has with the capital combined with the increased regeneration many key commuter towns are experiencing.

For the investor that wants a new market outside of the traditionally popular London area, Slough is demonstrating clear investment potential boosted by an exciting pipeline of redevelopment – a pipeline that includes Steel House. A brand new development for Slough, Steel House comprises 61 spacious open-plan apartments, each one hand-finished with sophisticated, high-specification features and luxury interior design. With an exclusive app for residents and high-speed utilities, Steel House is the epitome of smart city living even when you’re on the move. As part of Slough’s renewal plan, Steel House will meet the needs of the rapidly-increasing tenant demand sweeping through the town.

Why Invest for the Long-Term?

55% of respondents to the SevenCapital Brexit Survey believe the market will be ‘good’ to ‘very strong’ in 18 months time, with the figure rising to around 64% post-36 months. These are encouraging statistics, demonstrating the relative stability that the UK can present as a locale as well as the natural stability property provides as an asset type. 

This outlook on the market also fits with the ideal strategy of developing a property investment over the long-term. Buy-to-Let property benefits when the investment has time to deliver returns while experiencing natural growth. The UK property market’s past performance shows that it has the potential to double in value over a period of 15 years, all while delivering rental income to the investor.

It’s this idea of long-term that’s most important when considering return on investment. The concept of prioritising longevity and quality matches the natural course the market is taking. While property always follows the steps of ‘right location, right time’, increasingly we’re seeing investors and tenants opt for bigger ‘quality’ spaces that have surrounding amenities, encouraging tenants to rent for longer. 

These quality products tend to attract a premium tenant, ensuring a degree of yield security and thus, contributing to overall long-term returns. While many investors will instinctively opt for a lower quality, affordable development because they’re looking for initial value, this rarely works in practice. These developments will not necessarily attract the same quality or quantity of tenant as a premium development, especially over a long-term strategy.

Adopting a long-term investment also means investors can take advantage of the current market. Right now, the UK market is a perfect storm of low-interest rates (the lowest they’ve ever been, even by pre-recession standards), high tenant demand and nationwide undersupply. There’s never been a time like this and probably won’t be for a long time in the future – a time when the right investment can be incredibly lucrative because of all these factors coinciding together.

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