London Real Estate Market Took A Beating: Should You Still Invest There?
The COVID-19 pandemic and Brexit both had a huge impact on the UK, which affected the real estate market as well. However, contrary to many predictions, UK housing, particularly properties in London, hasn’t been hit that much. It’s true that there are some changes that might have long-lasting consequences. However, it’s still London real estate. No matter what’s happening in the world, this city will remain one of the global financial capitals.
However, the question is whether now is really a good time to buy London real estate. This is a matter that requires a lot of consideration due to the global economic volatility and weakening of GBP. The good news is that there are some circumstances, and some services, that can turn this dark year into a fantastic investment opportunity.
Impact of COVID-19 Pandemic on the UK Property Market
The COVID-19 pandemic impacted the UK real estate market greatly. First of all, it caused the biggest drop in housing prices in the last decade. But this is to be expected because the UK is entering an economic recession, along with the rest of the world.
Now, usually a big drop in prices is an indicator that nothing is good with the real estate market. However, this year the situation isn’t that “black-and-white”. On the one hand, the prices are going down and so do the sales. The unemployment level is growing too fast, which is the main cause of concern. With so many people losing wages, the number of prospective buyers goes down significantly. Moreover, those affected will need a long time to recover their ability to buy housing.
On the other hand, the recession also means a reduction in interest rates. In fact, according to experts, these rates might get lower still. This means that now you might have an unmatched opportunity to get a fantastic mortgage.
There is also a change in buyer demand to be considered. The pandemic has changed the world already. One of the main aspects of this change was that people have come to seek more comfort from their home. Already there is a lot of talk that remote work will become the new normal. Therefore, it’s not surprising that those who seek housing how are looking for bigger places with more comforts, better neighborhoods, and some outdoor space.
In the meantime, the commercial real estate market is truly going through a crisis. The trend for remote work is making expensive office spaces obsolete. There is no saying whether this industry will ever recover from the pandemic-induced changes.
What About Brexit and the Weakening of GBP?
Brexit is another major factor that affected the UK real estate market. Brexit means changes, which mean uncertainty. This uncertainty isn’t good for the economy. Moreover, it’s not good for the Pound. GBP has become rather volatile since the first Brexit announcement in 2016. The situation improved somewhat after the deal was finalized. But this is when the pandemic struck.
The Pound is now getting weaker and volatility on the currency market persists. This makes London real estate a riskier investment for foreigners and locals alike. The situation is better for you if your fortune is in USD, but the GBP/USD pair will remain unstable for some time.
That said, while Brexit definitely brought a lot of uncertainty, the real estate industry started to recover anyway. Prices are steadily rising, especially in London, where prime housing is always in demand. Both buyers and sellers are recovering their confidence in spite of the uncertain situation.
They are right to do so because even with the economy in recession, it’s clear that London real estate will remain a “hot” commodity. No matter the recent changes in prices and GBP, it’s still the sellers’ market. This means that volatility doesn’t change the fact that there is a line of willing buyers for every residential property.
Is Now a Good Time to Buy Real Estate in London?
Yes, now is definitely a good time to invest in London real estate. Even the GBP volatility isn’t an issue here as you can use the services of foreign currency exchange (FX) companies. Originally, they specialize in cheap international money transfers. But some of the services they offer are indispensable for real estate investors. One of these services is that these companies allow you to open USD accounts in the UK. Thus, the investor gets a chance to benefit from the fact that the USD is getting stronger against GBP. This trend is sure to continue for a while because the US Dollar is always strengthening during global economic recessions.
A foreign investor can use FX companies like WorldFirst, Moneycorp, OFX, TransferWise, and SpartanFX to reduce the total cost of this investment. By transferring the money through these services, as opposed to banks, one can save about 2% of the transfer volume on average.
But having access to cheaper money transfers and methods of protecting against currency volatility is only part of the reason. Now is a good time to buy London real estate because interest rates are on the low. They might even go down further in the near future. But housing prices will keep growing steadily. Therefore, now you have one of the rare opportunities to get a property in London on better terms.
Of course, there is the issue of financing. It’s true that mortgages have low interest rates, but getting them is extremely hard. This situation is unlikely to change for the foreseeable future.
However, you can use different approaches to obtain real estate financing, for example, crowdfunding.
How to Reduce Currency Risks Considering the Pound Is Unstable?
FX companies offer another important tool for investors who want to buy property in London. They give their customers access to hedging, which is invaluable in the current FX volatility conditions.
Everyone should understand now that unstable GBP is a risk for foreign investors. The global economic recession also makes it impossible to make any currency forecasts. As the situation stands now, one can’t even be sure that USD will remain at the top, and it’s the world’s reserve currency.
That said, hedging can protect an investor from unpredictable and unfavorable changes in the GBP exchange rate. Forward contracts are the tool you need to ensure your own security. This contract allows you to fix the rate at which you will exchange currency in the future. The rate is calculated using a special formula, so no economic crises can affect it.
Essentially, developing an effective hedging strategy and using USD accounts can help a real estate investor to minimize the risks that come with the current economic uncertainty.
Bottom Line: London Real Estate Is Always a Good Investment
Times change and at the moment, the global economic situation looks disheartening. This reflects on the real estate market. Therefore, investors are starting to doubt whether buying real estate in London now is not too much risk.
However, while it’s true that the market isn’t well now, it’s still London. The housing demand in this city hasn’t gone down in years. It keeps growing and people will keep buying this real estate no matter the recession. Thus, London housing was, is, and will be a good investment for many years to come.
The only thing a modern buyer needs to understand is that there are services that can help reduce your risks. You should research those, especially FX companies that can protect you from currency volatility.