6 reasons to invest in UK properties.

1. UK housing market is currently weakening and in the middle of a price correction after seeing incredible capital appreciation for the last 10 years. A min of 10% - 15% reduction in housing prices between now and mid 2009 is widely expected according to economists and property experts. Going by that measure, then by late 2008 and early 2009 would be a good time to enter the market and take a position. Property market generally operate in cycles and falling house prices must be seen in context on the backdrop of seeing a rise of 179% in the past 10 years. Prices has risen from an average price of £70,000 in late 1997 to £195,000 at today's price.  So a fall of 10%  is not really that bad. Plus house prices tend to increase in line with inflation. In 10 years time, there is a potential increase of another 50 - 80% from today if we want to be conservative.

2. UK economy macro economic fundamentals are still good despite weakening house prices and increased in living costs to weather the credit crunch crisis. UK is still showing low unemployment numbers (830,000 people are registered unemployed) and credits are still cheap (average 6-7.5% interest rates). More importantly, the economy is set to grow by 2-2.25% in 2008. It has been showing a positive growth for 16 years continuously now. Although domestic consumer and investment spending activity is expected to moderately slow down, the rest of 2008 is expected to benefit from Government spending (Olympic related developments, £50billion bond exchange scheme with banks, increase in personal tax allowance level and basic rate tax cut incentive from 22%-20%) to boost the rest of the 2008 economic activity. Richard Branson as reported in Sky news on Saturday 17th May as saying he was optimistic about the UK and world economy. He said: "We have not found less people using our trains, planes or mobile phones. It seems to be a crisis mainly affecting banking." I work with a UK Home Retailer (a mix combination of Ikea and Harvey Norman to put into Malaysian context with a £1.6 billion sales turnover) and can say that we too are not seeing a massive falls in our sales mostly help by the early warm weather in May. As a retailer selling products for the home like kitchen units,bathroom suites, tiles,flooring, soft furnishing and furnitures, we are very close to the consumers and would be the first in the frontline to see falling sales due to lack of customer spending. So far we are not seeing a long period of falling sales trend yet since 2007.  

3. Strong demand for residential accommodation is higher than ever due to inward immigration from East Europeans from Poland, Croatia, Hungary, Slovakia and Romania.  The demand is growing steadily for rented accommodation in suburb city outside London and in London area. Also, the number of people in UK remaining single and divorce rates are getting higher than ever adding to the demand for studio/1/2 bedrooms properties. Add the potential upside of capital appreciation in properties, armed with a deposit of 20%-25% and the rental income to support the mortgage costs, Malaysian investors will be in good position to minimise the risk of negative equity. In addition, basic demand and supply theory, will help shore up house prices and avoid a massive fall in housing prices. It is a well known fact that UK current housing stock and newly built properties is still not enough to meet residential demand. Lack of housing stock supply driven by complex planning policies will continue to prevent house prices to fall magnificently. With the current slowdown in the market, developers are putting a brake on new housing developments while they concentrate trying to shift existing developments. So this will further add pressure to housing supply further preventing the supply to catch up with demand. Lack of housing will continue to be an issue and will not go away anytime soon. This is good news from an investment point of view as long as supply cannot meet demand, prices will continue find new higher level of equilibrium between demand and supply.

4. Not many know this but Malaysian who is not a resident for tax purposes, do not have to pay capital gains tax no matter how many number of properties you sold and profit from. Your profit is tax free. The only tax that you have to pay is the rental income. But guess what..being a Malaysian and as part of the Commonwealth Nation, you are accorded the same entitlement as UK resident to an income tax personal allowance of up to £6035 (2008 rate) which is tax free. So if you have a property and the rental income of £8035 per year. Your tax liability is only for the income of £2000. Applying the rate of 20%@2000 = £400 is how much you have to pay. This you can further offset the tax liability by further deducting expenses paid for property maintainence, estate agent fee and other property associated cost. So most likely you do not have to pay tax or your rental income at all. 

5. Weak sterling currency. Yes the pound is dropping and will continue to be weak. This time last year it was about RM6.8 to £1. Now it is RM6.2 to £1. It will drop further (my personal view will be RM5.9 within 3 to 6 months time) as money investors are piling into gold, oil, commodity and popular currencies such as Euro/Aussie/NZ dollars to protect their wealth. As a Malaysian investor you will benefit not only from the housing price correction but also from the favourable cheaper currency rate when you enter the market. As long as your investment time horizon is to capitalise on capital appreciation in 5-8 years time, the weaker pound is negligible.

6. UK property is still affordable believe it or not. You do not necessary have to plough millions of ringgit to go for the high end properties. Average studio/1/2 bedrooms are price from RM350k onwards. Add 5% for lawyer fee, survey fee and mortgage fee. The best location to invest properties outside London are in Milton Keynes, Bedfordshire, Essex, Kent, East Anglia, Northampton, Oxfordshire and Berkshire. Traditional University cities such as Cambridge, Oxford, Nottingham, Sheffield, Liverpool, Manchester, Warwick, Cardiff and Birmingham will always be a good location. Investing in properties for student lettings can be very profitable strategy if it is managed professionally.

So...baaaaaaaasically, despite the weakening housing market at the moment, UK is still a credible choice for residential property investment for potential Malaysian buyers. Lack of housing stock will continue to shore up housing prices and a growing demand in rented accommodation will ensure rental rates will continue to provide good income for Landlords. Malaysians enjoy tax allowance on rental income and do not have to pay capital gains tax. Properties in areas outside London are still affordable and some cities make excellent buy especially in traditional university cities. Continue trend of weak sterling performance in the currency market help to increase Malaysian purchasing power. Strong Uk economic fundamentals and global growth, will not see a housing crash as seen in the 1990's. A housing price correction is underway currently and is expected to creep up again in mid 2009 for another boom until 2013 (after London Olympics which will be a good time to exit and enjoy your profits!).