Why Are Wealth Managers in Switzerland Choosing UK Real Estate?
As both seasoned buyers and wealth managers will know, diversification is one of the most important tools in an investor’s arsenal. Diversification allows an investor to reduce risk by allocating investments among various assets and industries, allowing them to maximise returns in various markets that might react differently to the same external factors.
Most investment experts would agree that while diversification doesn’t guarantee complete safety against risk, it does mitigate losses and is one of the best ways to reach long-range goals. Not putting all of your eggs in one basket is vital and having a balanced portfolio can ensure success even against external factors that might seem unfavourable.
Take Brexit for example. Despite being a political event centered around one country and one market, it will have a far-reaching impact for investors across the world. While domestic buyers may have held back on purchases, we’re seeing international investors jumping at the opportunity to leverage value on their foreign exchange.
This is how diversification can be used effectively. Consider that the amount of investment into the UK from Europe doubled after the 2016 vote, with EU buyers purchasing 553 UK assets since this time last year. You’d expect that a weaker pound and relatively poor performance of the traditionally popular London market would dissuade investors across the board but this isn’t the case. What doesn’t necessarily work for UK investors isn’t following around the world.
The SevenCapital Brexit Survey reinforces this, 30% of all respondents to the survey cited Brexit as an opportunity to invest and over a quarter of South African investors have chosen to invest following the vote.
Investors should also consider the correlation between their investments. If they can, having little-to-no correlation between industries and assets is ideal, mitigating risk across multiple markets. A common example of diversification is people having investments in airlines but also in a rail service, so that downturns to one can propel the other. However, both of these industries are based around transport and thus still correlate.
Common challenges for diversification is that it can become difficult to manage if the portfolio contains multiple holdings and investments. The bottom line however is that while diversification can help reduce volatility, risk can never be eliminated completely.
Why are Swiss Wealth Managers Choosing the UK?
Due to its reduced size, Switzerland has a much lower range of assets available compared to the UK, meaning a more competitive market that has driven property prices much higher. Zurich experienced some of the lowest rental yields of a major European city in 2018 and continues to be one of the least accessible markets due to the high initial cost.
This has made diversification vital for Swiss investors that want to take advantage of property and build consistent returns. The average Swiss property remains much less affordable than the average UK property and yet UK markets are able to deliver higher averages of around 4 – 5%.
Growth has also been much stronger in the UK between 2000 and 2016, despite Switzerland seeing substantial price increases. Swiss property rose by around 80.5% in those 16 years, while the UK saw price rises of 144%.
Property trends are also increasingly different compared to the UK when looking at Switzerland. Around 60% of Swiss residents rent, driven by the limited housing stock and the rising prices mentioned earlier. The UK is increasingly seeing more renters, although they only make up around 25% of the housing market right now. As Generation Rent comes into play – driven by affordability challenges and a priority on flexibility – we’re seeing homeownership levels in the UK drop. Predictions expect that by 2039, renters will outnumber homeowners in the UK market as we pivot to a more ‘European’ approach.
The purchase process is also much different. While Swiss banks are moving to tighten lending conditions for investors (those buying purely as an investment must pay 25% of the value of the loan as a down payment before they even get the mortgage), the UK is much less of a challenging investment environment regardless of where the buyer is coming from.
So what does this mean for European investors, especially from Switzerland? The UK and Switzerland already have a strong business relationship (worth around £31 billion a year) and as Brexit continues to affect the market, Swiss investors and wealth managers can leverage favourable foreign exchange rates to find value in the UK market. Consider that according to currency rates between Swiss Francs and GBP over the last three years, property has become 15% less expensive. In actual figures, a £250,000 property in 2016 translates to 370,000CHf while a £250,000 property in 2019 equals 319,581CHf.
SevenCapital Partners with Guardian Wealth Management
Swiss business links and favourable conditions have helped us build a strong foundation with the Swiss arm of global wealth advisory group Guardian Wealth Management. As a property developer with extensive knowledge of the UK market, we’re able to deliver exciting developments in prime locations.
Chris Ellis – Head of Global partners at Guardian Wealth Management said: “We believe that property should form part of any client’s investment portfolio and having a reliable partner to work with is essential.
“Our clients give us excellent feedback due to the professional approach that SevenCapital takes. The hands-off service that is on offer provides real value for our clients across Switzerland as SevenCapital is able to take care of all aspects of the property investment which is an exceptionally rare service.
“The big difference for us as a business is knowing that when we recommend SevenCapital our clients are going to be dealing directly with the developer and not a 3rd party or an agent, this gives both us and our clients the confidence that the product on offer is being provided by a proven and trusted source.
“Working with SevenCapital has already proven to be very rewarding for a selection of our clients who are keen on investing in property. We would recommend SevenCapital to anyone who is considering adding a property to their investment portfolio.