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Monday, 15th April 2024
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A WINDOW OF OPPORTUNITY FOR IRISH INVESTORS IN THE UK Back  
The UK investment market has never looked more attractive as low interest rates and bond yields are beginning to lead to stronger property prices in the market place, writes Denise Murphy.
UK residential and commercial property has become increasingly popular with Irish investors, particularly over the last 12 months. This trend is likely to accelerate this year with Irish investors concentrating on prime secure properties. One of the main reasons for this is the recent reduction in UK interest rates. From September last year the variable rate has fallen from 7.7% to just 5.5%. The UK investment market has never looked more attractive as these low interest rates and bond yields combined with the sheer weight of UK and overseas money looking for a home in the UK are only now beginning to lead to stronger property prices in the market place. This means that there is a very real window of opportunity for the Irish investor who moves now before the inevitable rise in values. With the Euro interest rate at around 2.5%, if the UK economy moves towards becoming part of the Euro zone Hamilton Osborne King expects UK rates to reduce even further.

Economic Outlook

Up until the end of 1998 the media and some experts had talked of a possible recession in the UK. However, this pessimistic view seems to have been short lived as the mood amongst experts has changed in recent times. UK fund managers in particular have become markedly more optimistic and believe that the UK economy is set to improve over the coming year, helped by falling interest rates and a positive response to this years budget.

Why Invest in the UK?

The UK investment market offers a variety of attractions. The most important include:

¨ Higher initial yields. Average property yields in the UK currently stand at around 7.5%. This will however fall if prices increase.

¨ As the UK property market is vast relative to ours and has not experienced a boom in recent years it enjoys a constant supply of quality opportunities suiting all types of investors and pockets.

¨ Unlike continental Europe lease structures in the UK are similar to that found in Ireland. Long term leases are available where the tenant is responsible for all repairs and costs. This security allows Irish investors to obtain highly geared funding.


¨ The UK can provide an excellent range of quality tenants due to the size of their economy. A private investor purchasing a property in a small town can often find themselves with the same quality tenant as a large pension fund on Oxford Street.

¨ Unlike the early 1990€s new supply of good quality space is limited which allows the potential for real rental growth in the future.

¨ Transfer costs are lower in the UK. For example stamp duty is charged at 3.5% for transactions in excess of stg. £500,000 compared to Ireland where stamp duty is currently 6%.

¨ Finance for good quality investments is readily available from Irish, UK and German banks.

¨ Mortgage interest relief is still available to purchasers of commercial investments in the UK.

¨ Currently when an Irish resident investor sells their property in the UK they are liable to capital gains tax at the Irish rate which is 20%.

Dublin

By comparison the supply of investment opportunities in Dublin has never been as tight. With total returns from commercial property reaching an all time high of 38% last year and interest rates at an all time low the obvious result is insatiable demand for property from both Private and Institutional investors. Initial yields are lower in Ireland than the UK. The purchaser of any quality investment will only receive an initial return of 5.5% or less. However, 1999 is likely to be another good year for those lucky enough to secure an Irish investment as we expect total returns (which includes capital and rental growth) to reach 25% for the year.

UK Pitfalls

With any property investment there are certain risks. Although not related to the property, currency risk is the most obvious when acquiring property in the UK. This risk can be greatly diminished by borrowing as much of the purchase price as possible in sterling thus matching inflows and outflows. Some banks also offer back to back loans for the equity element which gives investors the choice of when to purchase their sterling.


Unlike the Irish property market where almost any property is a safe bet at the moment without local advice, Irish investors can get it very wrong in the UK. The key to achieving good total returns is stock selection in terms of both location and sector. It is important to remember that if the initial yield is in excess of 7.5% the property is more secondary than the market average.

Residential

There has been enormous interest from Irish Investors in the London Residential market in the past 18 months. London makes a compelling investment case at present for a number of reasons. The average yields available in central London are between 7.5% and 10%, and prices are comparable with Dublin. The strength of the London residential property market is underpinned by the exceptional corporate lettings market, which has always remained buoyant. Tenants are drawn from the massive Financial Services industry in London, and most tenancies are agreed with the financial institutions rather than the individual. As an example, there are over 25,000 people employed at Canary Wharf as compared with 5,000 in Dublin€s International Financial Services Centre. Hamilton Osborne King acts for a number of the leading UK developers, with schemes available in Docklands and Central London. Generally, the standard of finish and specification is very high with all electrical appliances and floor coverings included. Stamp duty is between 1.5% and 2% of the purchase price.

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