While 2017 was forecast to be a challenging year, the London property market proved resilient and outperformed expectations ... and setting the pace for this year. Despite widespread political uncertainty, many encouraging high-value transactions took place and international investors can look forward to this momentum continuing.
Recently, a number of trends have emerged indicating a shift towards more sophisticated purchasing patterns, showing that interest in the UK property market has not faltered since Brexit. Investors have instead been altering their preferences to ensure smart purchasing decisions as the weaker pound offers immediate savings on UK property of up to 20 per cent.
There has been a notable increase in institutionalised investment as well as a surge in bulk buying, particularly in larger developments of over 100 units. Meanwhile, these buyers also understand the impact of regeneration, which has been a significant draw for investment in the UK market, with many areas of London and the north receiving substantial funding.
International investors, especially Middle Eastern and Chinese, are particularly in tune with the regeneration activity taking place and see the benefits of investing early. This is because they understand the scalability, due to the volume of regeneration rippling across the capital. There is also a significant lifestyle element to an area undergoing regeneration, as this investment will often bring a variety of new retail, education and transport facilities, as well as substantial employment opportunities.
Overseas buyers are therefore beginning to focus their attention on these emerging markets that pose higher potential yields, rather than the more well-known hotspots in prime central London, which have been most popular historically.
Outer boroughs such as Ealing and Hackney for example have seen prices skyrocket in recent years. Ealing in particular is in the throes of regeneration, with five new Crossrail stations popping up across the borough. In 2019, once the east-west line opens, the commute to the West End is expected to take just 11 minutes.
Not only will this make the area highly accessible, but it also boasts a variety of green spaces and excellent schools, making it a popular option among families.
The market has already seen a significant uplift in buyer interest for property in both East and West London of late, whilst Crossrail and HS2 have both struck a chord with international investors due to the huge benefits this enhanced infrastructure will bring, casting the net of investment hotspots even further afield. As well as the popular commuter towns that lay south and west of the capital, including Surrey and Berkshire, there is also significant interest in emerging cities such as Manchester and other regional centres.
Currency play It is important to note that while fluctuations in dollar-based currencies, as well as the falling value of the pound, will have an effect on demand for UK property, savvy Middle Eastern investors fully recognise the benefits of maximising the currency play. There is also an expectation among the European property industry that interest rates will rise in 2018.
If this does come into effect, there is still no threat that they will rise fast or far enough to significantly reduce the attractiveness of UK property, compared with fixed income. International investors should feel encouraged that the property market in the UK is resilient and continues to offer an attractive prospect.
It is also evident that the degree of Brexit-induced pessimism in the UK has lightened significantly since last year, which is extremely promising. Throughout 2018, I fully expect investment to continue in a progressive movement towards normalisation. Although investment levels may be subdued compared to the peak experienced in 2015, on a historic basis, they fare extremely well, particularly in light of the huge (and unexpected) political change brought about by Brexit, which the UK has quickly come to terms with.
The writer is Director of Residential Development & Investment, UK Sotheby’s International Realty.
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