Dmitry Leus, founder of Imperium Investments, shares his views on Britain’s investment prospects. He explains why the housing market is still worth considering and highlights opportunities in commercial warehouses. But there may be some turbulence in the short term.
Amid Brexit uncertainty, the UK remains an attractive and stable market to invest and do business in. In 2017 it generated a trade surplus in financial services of £68bn, 14 per cent more than a year earlier, according to industry-led body TheCityUK, which represents UK-based financial services. Britain also benefited from overseas investment of £8.6bn between 2013 and 2017, and has recently been named Europe’s unicorn tech capital, with more than a third of the continent’s fastest growing tech companies based in the UK, research by Tech Nation reveals.
It took me several years of exploring the British market to understand the key factors that drive investment. There are local nuances to be considered, as well as regulations and scenarios that are unique to the UK. It is therefore wise for those looking to enter this market to start with a small, simple and clear investment. This will help optimise risks and save money by gaining priceless knowledge and experience.
Property can still be considered one of the most stable investments in the UK. Two key indicators in this market – exchange rate and interest rate – have remained essentially unchanged: the pound fluctuated between $1.27 and $1.32 in the past 12 months, and interest rates were kept low (0.75 per cent). In addition, London held its position as the world’s top financial hub (or second after New York, depending on the ranking used), and Britain’s house prices in the three months to May were 5.2 per cent higher than a year earlier, according to mortgage lender Halifax. This combination of factors provides a sense of stability and optimism that may encourage people to invest in properties.
But there is a crisis in the housing market. Prime Minister Theresa May described this situation as "the biggest domestic policy challenge of our generation". An interesting opportunity in property, therefore, could be affordable housing – especially in London’s travel zones 5 and 6, where a three-bedroom house could cost around £550,000, according to research from Homes & Property. Beyond London, urban centres such as Manchester and Birmingham have large student populations and a fast-growing middle class who seek affordable property to rent or buy.
In Manchester, iQ Student Accommodation (owned mostly by Goldman Sachs) is planning to build a ‘co-living’ development, where those who cannot afford to rent a flat on their own can get a bedroom with shared communal spaces. Goldman has already invested £184m in a similar project in Birmingham, and there are several home-ownership schemes nationwide that aim to attract first-time buyers (for example, Share to Buy). There is still potential to grow in this market.
Another interesting opportunity to consider is commercial warehouses. The global trend of online retail growth gives the warehouse business a long-term prospect, especially after May’s 2.7 per cent drop in retail sales – the worst on record since 1995, according to the British Retail Consortium (BRC). But before jumping into this, investors should explore the logistics of the most demanded shipment routes from the arrival points of commodities to the sales markets, a factor worth considering when evaluating the risks in this market.
The expected return of investment in property is circa 5-10 years. Investors should therefore remain patient and be prepared to take some risk, which will be mainly determined by the UK’s future relationship with the EU and the impact this may have on the value of the pound. Those who are ready to endure some short-term turbulence are likely to be rewarded in the longer term.