Unlocking opportunity in the UK’s real estate market
Low interest rates, favourable exchange rates and a track record of returns continues to make the UK property market a key target for investors.
After a brief pause in activity around March 2020 as the market absorbed the COVID-19 effect, UK real estate rebounded, with HSBC's UK Private Banking Credit Advisory team reporting high-value transactions up by almost a quarter on the previous year. There were, says Helena Bonsu, Head of Credit Advisory, HSBC Private Banking (UK & CI), a number of factors driving that.
"Whilst a number of clients have taken the opportunity to deleverage or reduce their overall levels of debt, there has also been a pronounced shift in borrowing appetite from a number of our UHNW clients. Debt is the cheapest it's ever been, and this has opened up significant investment opportunities for our clients where they are able to move quickly. Many of our clients have been ensuring they are well positioned with access to debt to take advantage of opportunities that are arising in this time of economic dislocation – whether this be to invest in financial markets, a larger or second property, or for business acquisition or expansion. In particular, we certainly saw growth at the GBP20 million-plus end of the market."
Fuelling domestic and international interest
Another factor that played into increasing demand was the Government's temporary increase of the stamp duty threshold to GBP500,000 for property sales in England in July 2020. This combination of tax reduction, low interest rates and a favourable exchange rate has, in many senses, created a ripe environment for property sales, garnering interest from both domestic and overseas clients.
"The continued weakness of sterling has attracted a number of international purchasers who have been able to take advantage of the UK property market, particularly within Central London," says Helena
Playing into that interest from international purchasers is both the quality and availability of property in key areas and the perception of risk level, says Andy Rubery, Director, Credit Advisory (UK & CI). "We're seeing a lot of interest in new build, off-plan luxury developments in central London, particularly from Asian and Middle-Eastern buyers, who may be looking at purchasing multiple units – often at a discount – some to live in, others to house staff or as an investment."
"In addition, the UK is still seen as a safe haven – property is a strong asset class and purchasers are looking at these investments as a long-term hold."
Another trend that's marked 2020 and the early part of 2021 has been a growing interest in UK purchasers moving away from the city to the surrounding countryside. "We've all seen a fundamental shift in working environments, which is likely to be the catalyst for a long-term change in the way we work – and that's increased interest in properties with more open space, but with good transport links, and usually still within touching distance of London," says Andy. "For some purchasers, that's meant a wholesale shift to the country, whereas others are hedging their bets and retaining property in the city as well."
In a market that’s moving quickly and where demand is so high, our ability to move swiftly can make all the difference.” Helena Bonsu, Head of Credit Advisory, HSBC Private Banking (UK & CI)
The ability to move quickly
In such a hot market, being able to react rapidly to secure opportunities is crucial and the sophistication of HSBC Private Banking's underwriting team is especially valued. Their skill in understanding customer circumstances, including an ability to take a holistic view of a customer's net worth and future income flows, means the team can tailor lending to meet individual needs, and move with remarkable speed explains Helena.
"At the end of 2020, one of our clients approached us regarding a property they were keen to secure. However there was more than 40 viewings and in excess of 20 offers on the property, some of which were above the price our client offered. But because we were in a position to complete the transaction within three weeks our client’s offer was accepted and they secured their dream property. In a market that’s moving quickly and where demand is so high, our ability to move swiftly can make all the difference."
Looking to the possibilities ahead
As 2021 gets underway, both Andy and Helena feel cautiously optimistic about the market outlook. "Whilst the environment may feel uncertain, the outlook for many of our clients remains positive," says Helena. "The demand we're seeing in Q1 looks set to run into Q2. We may see some levelling off in the second half of the year, but the fact that our clients take a long-term view, coupled with the strong performance of Prime Central London real estate, point to continued interest."
To some extent, says Andy, the market is counter-cyclical. "Our clients don't necessarily follow the trend, so if the market starts to come off, it's actually an opportunity for them, and with continued availability of cheap debt, they have an ability to seize those opportunities."
"In every crisis, there is opportunity for those buyers with liquidity and strong bank relationships. It may well be that, as 2021 plays out and Government support schemes are reviewed or adjusted, some home owners may look to deleverage or unlock liquidity to support their businesses or invest in new ventures, and that could provide a buying opportunity for our clients as the year unfolds."
To discuss your credit needs in more detail, please contact your Relationship Manager or Credit Advisor.