Friday, May 22, 2009

British Real Estate: Weak Pound Making Investment More Attractive

The falling value of the pound is making British real estate look more appealing to overseas investors. The pound just fell sharply in response to news that Standard and Poor may lower the UK's AAA credit rating. The depreciation of the pound means that overseas investors can get more for their money, as the following article from Overseas Property Mall describes.

Overseas buyers are increasingly attracted to UK real estate due to the gradually collapsing value of the pound. According to DTZ’s European quarterly report:

"Overseas investors in particular are circling the UK market, where the depreciation of sterling has reinforced the perceived improvement in value brought about by relatively rapid yield correction."

When the Investment Property Databank published its 2008 index for the European markets,an increased focus on overseas investors. The index reported a -4% total return over the year across the continent, measured in local currencies.

Returning a plus of 6.7% in the year of 2007 this indicated a rather sharp drop. The analysis clearly showed that currency movements had indeed a huge impact on investor returns.

Investors in the Sterling currency were able to enjoy a positive return of 16.7% over the year. On the contrary, those who placed their funds into the Japanese Yen pot suffered a 31.5% drop in the value of their holdings. This was seen thanks to the weakening of the Sterling, and the appreciation of the Yen respectively. Investors in the EURO suffered a loss of -11.4%.

Head of direct investment at DTZ, John Slade said the correction in UK yields was the main reason for the return of foreign interest. He also added the weakening pound meant that if a dollar or Euro investor bought a five-story building, the top floor would come free.

John said: "It is certainly encouraging people to invest in the UK."

Head of the cross-border team at property advisers King Sturge, Penny Hacking, said US, German and Middle Eastern investors were being attracted by the weak pound. They also favored the drop in prices, and the trend would shift to Europe.

Penny Hacking said: "I think the euro will weaken a lot by the end of the year, so US investors who are focusing now on the UK will focus more on Europe, where capital values are also about a year behind the UK."

Another market thought to look attractive according to the DTZ report was the Swedish market. Thanks to the 15% depreciation of the Krona against the Euro over the past 12 months it offered many opportunities for overseas investors. Hacking had advised a client on a large Norwegian portfolio last year and this enabled that client to make a nice profit on the currency hedge on the investment. She also stated that a lack of ready finance in the Scandinavian markets and the cost of hedging local currencies, was bad for foreign investors.

This post can also be viewed on

No comments: