On December 4, 2014, stamp duty on property purchases was reformed by the UK Government, meaning that people who bought homes for under £937,000 (Dh4.3 million) would pay less in tax when compared to the old system. At the time, the then chancellor George Osborne stated around 98 per cent of purchasers in England and Wales would pay less after the stamp duty reform.

Since April 2016, a 3 per cent Stamp Duty Land Tax (SDLT) surcharge has applied to purchases of buy-to-let property and second homes. It was claimed that British house buyers would be hit the hardest by these new stamp duty changes while wealthy Middle East investors would benefit from a weak pound and rising oil prices even as Brexit prompted buyers from every other region to shrink their spending.

We have seen a significant increase from Middle Eastern buyers in their appetite for London. While the collapse of the pound has also benefited Asian buyers, a crackdown by the Chinese government on overseas purchases has helped Middle Eastern buyers to regain market share. Many investors from the region also have long-standing relationships with the UK and its education and legal systems, which provides a sense of stability.

Home values in central London have fallen over the past year as sellers have cut their asking prices in the wake of the Brexit vote. Values dropped by an average of 6.7 per cent across the capital’s prime districts as SDLT increases curbed demand. But the lower prices are luring buyers back into the market, with sales increasing in the final quarter of 2016.

Middle Eastern investors

There are two key reasons for this increase: currency and stability. This has proved to be partly true, especially with the vote causing the value of the pound to fluctuate further, allowing Middle Eastern investors to snap up UK property at the lowest price for a decade.

Buying a property comes with significant additional costs reaching as high as 15 per cent of the property price. Understandably, buyers in the Middle East are not happy about paying this tax, particularly since the hikes last year were thoughtlessly introduced by the chancellor and almost killed the buy-to-let market entirely.

While it is not a decision welcomed by potential buyers, Middle Eastern investors in particular are more cash rich and therefore able to cover the cost, which has resulted in continued interest in UK property.

The introduction of the SDLT surcharge has however altered investor preferences. As the cost of buying more expensive properties in prime locations has increased, many foreign investors are instead looking to buy cheaper properties in more peripheral, suburban areas, where transaction costs are lower.

In addition to this, the industry is aware that the introduction of the Crossrail service is imminent, which has resulted in Middle Eastern investors now looking to the outskirts, in particular commuter towns with convenient transport links into central London. These areas are far more affordable, with prices around 60 per cent lower than in central London.

Soaring values

While the average commuter time for a third of Londoners is over 45 minutes, the journey from a town such as Slough in Berkshire to London Paddington can be made in under 20 minutes.

It is no secret that the soaring values of both commercial and residential real estate, plus the additional stamp duty, is likely to make the capital’s property market less attractive. While London property will still remain a key target, Middle Eastern investors are more ready to consider regions and towns outside London.

It is likely we will witness a significant shift in investor interest with new investment hotspots emerging in areas that were previously unrecognised by these buyers. Whilst the government is continuing to invest in improving infrastructure, with new projects such as Crossrail and regeneration across the capital and beyond remaining a priority, the UK will remain a haven for property investors.

The writer is Managing Director at Fraser & Co.