Property market uncertainty: investment challenge or opportunity?
Political uncertainty, higher taxation and stricter lending criteria are causing disquiet in the UK property market. But behind the headlines lies a strong rationale for the right investment model.
A cursory glance at media coverage might give the impression that the UK housing market is struggling. But property remains one of the key pillars of investment with good reason.
Armed with a proper understanding of both the challenges and the opportunities, informed investors can still use property investment to generate strong returns.
Causes of concern
In a recent survey of property professionals, some 38% of respondents cited uncertainty around Brexit as the biggest challenge affecting the sector. A further 24% pointed to higher taxation, while stricter lending criteria was a concern for 17% of those surveyed.
Despite this, 60% agreed that there is a greater range of property investment opportunities available now compared to five years ago.
The UK’s divorce from the EU creates a range of scenarios for exchange rates, interest rates, economic growth and wealth generation.
However, the market impact of Brexit has been far more subdued than many commentators predicted, and post-Brexit it’s reasonable to expect the market to bounce back. As Mark Ivimy, Business Development Director, Prinvest UK, comments:“Once Brexit concludes, in whatever fashion it takes, the fundamentals of the property cycle – supply and demand – will continue to work unabated, with low levels of stock continuing to support house price growth.”
Research indicates that Brexit has affected the mass market through both supply-side impacts (such as increased costs for building materials and labour shortages) and demand-side issues (including stagnated real wage growth and affordability constraints).
A range of government policies has actively sought to cool the market. These have included non-dom taxation, stamp duty revisions, inheritance tax reforms, unexplained wealth orders and a clampdown on offshore structures.
It’s been over two years since the Government increased the amount of Stamp Duty Land Tax (SDLT) buyers need to pay on second homes, adding 3% over the standard rates. Data suggests that landlord purchases have remained low ever since, but, as expected, first-time buyer mortgages have increased.
Since September 2017, mortgage providers have had to adhere to a more rigid lending process for clients seeking a second mortgage. Investors unable to prove they can make the monthly repayments may find it harder to secure a good deal.
Meanwhile, in October 2018, Prime Minister Theresa May announced plans to impose a 3% stamp duty surcharge on foreign buyers of UK properties who do not pay UK tax (overseas buyers account for roughly half of all residential transactions in central London).
However, despite these issues the UK property market remains resilient. In its UK Economic Outlook released in July 2018, PWC predicted house price growth in most regions. Even London, where it projects house prices could drop by nearly 2% overall in 2018 compared to 2017, was expected to pick up in the medium term.
Meanwhile, real estate services firm CBRE’s 2018 Global Investor Intentions Survey found that investors planned more purchases in 2018 than in 2017, reversing a three-year trend in the other direction. Looking further forward, both Savills and Knight Frank predict double-digit house price and rental growth over the next five years, having made their forecasts in 2017 when the UK’s future was arguably at its most obscured.
More recently, property prices have slowed as an outcome of Brexit negotiations but property values in all British regions will still rise above this year's numbers by 2019, according to a number of the UK’s biggest property developers. They predict that property prices will rise by 1.5% across the region this year. The end of the year looks more positive with an estimated 2% added price increase as well as 3% more by the end of 2019. Also, estate agents Savills said on November 2, 2018, that it expects house prices across the UK to climb by 14.8% on average between 2019 and 2023. This increase would add about £32,000 to the average house price by the end of 2023, taking it to £248,086.
Making the most of market uncertainty
In any market, the balance of demand and supply will determine whether prices rise or fall. With ongoing uncertainty impacting the level of new property development but demand for the right kind of properties remaining high, there are clearly opportunities for the savvy investor.
Several elements are key to successful property investment in the current environment:
- A deep understanding of local markets to identify hotspots and undervalued development opportunities
- Rigorous analysis of costs, risks and saleability
- Careful management of projects to ensure timely completion
At Cogress we have built a refined property development investment model around these factors, giving high net worth or sophisticated investors the opportunity to invest in high-value, high-end developments that have been carefully chosen to address specific, localised demand.
With the approval of the UK financial services industry regulator, our thorough due diligence processes are combined with our underwriting and careful monitoring of projects. Taking an exit-oriented approach, we target returns of 12-20% p.a. within time frames of 18-36 months from agreement to project completion.
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How it works
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 John Pye Auctions,‘Lifting The Lid On Key Property Market Insights’, John Pye Auctions, 30 May 2018. Available at: http://www.johnpye.co.uk/property-market-insights/
 Mark Ivimy, ‘12 Months To Go: Brexit And The UK’s Defiant Housing Market’, Prinvest UK, 12 April 2018. Available at:https://prinvest.uk/property-market/8694/12-months-to-go-brexit-and-the-uk-s-defiant-housing-market
 Dr Walter Boettcher,‘Brexit Property Impacts: A Summary By Sector’, Colliers International, September 2018. Available at: http://www.colliers.com/-/media/files/emea/uk/research/market-overview/colliers_international_brexit_property_impacts_0918.pdf?la=en-GB
 Largemortgageloans.com, ‘Two Years On, How Are The UK’s Stamp Duty Tax Changes Continuing To Affect Buy To Let Landlords’, Largemortgageloans.com, 20 March 2018. Available at: https://www.largemortgageloans.com/two-years-on-how-are-the-uks-stamp-duty-tax-changes-continuing-to-affect-buy-to-let-landlords/
 Nishant Kumar,‘London Luxury Homes Face New Hit As UK Plans Foreign Buyer Tax’, Bloomberg, 1 October 2018. Available at: https://www.bloomberg.com/news/articles/2018-09-30/may-plans-to-hike-u-k-property-tax-for-foreign-home-buyers
 PWC, ‘UK Economic Outlook July 2018 – Prospects For The Housing Market And The Impact Of AI On Jobs’, PWC, July 2018. Available at: https://www.pwc.co.uk/services/economics-policy/insights/uk-economic-outlook/july-18.html
 CBRE, ‘Global Investor Intentions Survey 2018’, CBRE, 15 March 2018. Available at: https://www.cbre.com/research-and-reports/Global-Investor-Intentions-Survey-2018
 Mark Ivimy, ‘12 Months To Go: Brexit And The UK’s Defiant Housing Market’, Prinvest UK, 12 April 2018. Available at: https://prinvest.uk/property-market/8694/12-months-to-go-brexit-and-the-uk-s-defiant-housing-market
 GIHLondon Property Investment, ‘Outlook On UK Property Prices In 2019’, GIHLondon Property Investment, November 13 2017. Available at: https://prinvest.uk/property-market/8694/12-months-to-go-brexit-and-the-uk-s-defiant-housing-market
 Julia Kollewe,‘Northern England House Prices To Rise At Faster Rate Than London’,The Guardian, November 2 2018. Available at: https://www.theguardian.com/business/2018/nov/02/northern-england-house-prices-to-rise-at-faster-rate-than-london