Buy-to-let property in Liverpool and surrounding cities is a winning investment strategy
BY MELISSA VAN ACHTERBERG
The Reds aren’t the only players at the top of the log.
That’s the opinion of Tim Mertens, Chairman of Sovereign Trust (SA) Limited. Naturally, he’s talking about off-shore investment opportunities for South Africans – buying property in the UK’s greater north, to be precise.
With Brexit D-day less than three months away, many are questioning the soundness of the UK as an investment destination. But, British property market analysts say that the fundamentals of ensuring a return out of property investments won’t change: put down the biggest deposit you can and aim to retain the property for at least five, preferably 10, years. Further, they’ve examined the underlying market fundamentals and identified a trend for inner city urban living populated by growing, youthful communities that provide an ongoing supply of tenants.
Boom! You’re looking at Liverpool, Birmingham, Manchester, Newcastle and, of course, London. These key cities offer Brexit-proof potential, says Mertens. His advice, in a nutshell? “As an investment destination, the UK is reliable and profitable, and so Britain’s property market continually draws international investors and delivers returns in GBP: a currency long-established as a Rand hedge. The ‘secret sauce’ for buy-to-let investors is focusing on areas where populations of younger people are expanding rapidly, and where employment prospects are sound.”
The metro cities in the greater north-region fulfil these criteria. Liverpool’s population is set to increase by 12% between now and 2041, with 42% of its residents being under 30 compared with the UK average of 37%. The city’s booming service and healthcare sectors, knowledge economy and rich cultural scene attract talented young professionals, and the city’s entrepreneurial movement has accelerated a major regeneration.
By 2041, Birmingham’s population is set to rise by 14.5% reaching 1,313,300. Already boasting a 65,000-strong student talent pool across five university campuses, the city has the sixth highest graduate retention rate of any city in the UK. Reading between the lines, it benefits from a vast pipeline of future workers and entrepreneurial talent that feeds the rental property market. Mertens says that, as Birmingham’s city centre continues to expand, the demand for quality new-build homes and developments will continue to attract attention and the demand for housing in prime locations will continue to rise.
Similarly, Manchester is in line to see its population grow by 14.1% by 2041, with property prices up by more than 30 % since 2013. As part of the Manchester-Liverpool metropolitan region, it ranked in IBM’s list of top 10 global destinations for foreign direct investment in 2017. The city is second only to London in terms of its graduate returners, running at 58%, as well as its influx of graduates with no prior connection to the city. That’s population growth in real terms.
The over-achiever in the area, Newcastle, saw its city centre populace swell by 112% between 2002 and 2015, and projections give it 318,100 residents by 2041 from 297,400 in 2018. Student numbers at Newcastle University have shot up by over 70% since 2000, while Northumbria University has seen student numbers expand by over 114% over the same period. With nearly 50,000 students in total, a full sixth of the city’s population is engaged in study with many choosing to remain living in the city after graduating. The resulting spike in demand for city centre living is creating a hotbed of innovation within the housing sector, as developments compete to attract this younger generation.
It’s no coincidence, comments Mertens, that Amazon established its first Amazon Academies – which run programmes and events to empower small, local businesses – within this northern quadrant.
And then, London: Over the next 25 years-or-so, London’s population is projected to increase by 15.4% which will push up demand for housing across the capital. It’s projected that 60% of Londoners will rent their homes by 2025, almost literally meaning that property developers can’t build fast enough. Property prices here have risen by 32.36% over the past five years and, with the influx, seem set to keep appreciating.
Back to Brexit. Mertens says that the Pound devalued after the announcement but is likely to strengthen as trade negotiations become clearer. “This, coupled with a slightly stronger Rand, makes property in the UK around 25% cheaper for South Africans than it was just a few years ago. But, even with the world’s positive reaction to President Ramaphosa’s first forays into tackling corruption, our economy remains uncertain in the face of this year’s election. We advise keeping Rand-holdings and Rand-denominated debt to a minimum. The time to diversify off-shore and expand your investment asset classes is now.”
Sovereign Trust SA advises local investors entering the UK buy-to-let residential property market to set up a company structure to purchase the property, rather than purchasing in their personal capacity, and in this way cap tax on their net rental income at 20%. Sovereign Trust SA would register such companies as ‘offshore landlords’ with HM Revenue and Customs (HMRC) to circumvent the much-higher taxation of rental income that’s levied on individuals.
For South Africans looking at investing in the UK as a means of tax-efficient offshore succession planning and retirement provision, Mertens would advise utilising a Guernsey Conservo International Retirement Plan (40ee) or a QNUPS (Qualified Non-UK Pension Scheme). “These structures are able to hold shares in underlying company structures, so it makes sense to combine them with UK property investing when appropriate for specific needs. As a case in point, if a discretionary trust were to be the shareholder, UK Inheritance Tax (IHT) may apply and the trust would also be liable for the UK’s 10-yearly charge, which can be as high as 6%. Conservo and QNUPS structures are exempt from these taxes.”
Sound advice, proven by the fact that offshore companies effectively bought tens of billions of Pounds-worth of UK-based buy-to-let property between 2005 and 2014.
“The truth is that no-one can predict the future, and that’s the case with Brexit, too,” says Mertens. But bear the following in mind. UK property has long been a stable asset class coupled with a strong base currency. London is the financial services capital of the world and has the highest regulatory and compliance standards across the world. Moreover, the UK has an excellent and highly respected legal process which ensures that, when you buy property, you have the security of title on the asset. With their urbanisation trends, the UK’s northern cities exhibit incredible potential to amplify property investments in the buy-to-let ambit. Kicking into the UK property market should be every local investor’s goal.”