Financial Times Feature: Overseas investors find UK regional property a safe bet

British homeowners are not the only ones feeling flush after a year of sharply rising house prices outside London.

Investors from Saudi Arabia to Hong Kong have been placing ever-bigger bets on the UK’s regional cities, building houses there and banking big gains.

For three decades overseas money has flowed mainly into the capital, attracted by a booming economy and sharply rising house prices.

But when family-owned Saudi conglomerate AIMS Holdings appraised the UK in 2019 it concluded quickly that the likes of Manchester, Newcastle and Leeds offered better value for money.

“When we first wanted to invest in the UK we looked at London. Then we saw there were much more opportunities elsewhere. It was a real eye-opener,” said Abdulaziz Albassam, chief executive of AIMS Investments, its wealth management arm.

The timing was perfect.

The average house price in England increased by 8.9 per cent over the year to April 2021. But in London, the rise was just 3.3 per cent, against 16.9 per cent in north-east England. In Scotland, the average house price advanced 6.3 per cent over the year to April.

House prices in London are double those of the national average and the pandemic has eroded its attractions. Families are seeking bigger homes with gardens outside the city and many workers are no longer obliged to commute daily to the office.

Meanwhile, employers are shifting jobs to regional cities, where they can attract graduates by offering a better quality of life. Goldman Sachs in April announced a new technology centre in Birmingham employing several hundred people, part of a growing trend.

Most of the UK property investments is flowing into private homes for rent, mainly apartments for young professionals. The developer either retains the asset or sells it to individuals, usually in Asia. They continue to manage the development for a fee, ensuring it retains its value.

Savills, the consultancy, said investment into the private rental sector in Manchester, Birmingham and Leeds combined topped £1bn in 2020, up from £361m in 2018. Jacqui Daly, Savills residential research director, said: “ investments demand is strong with a lot of new entrants, both domestic and international, and better yields mean the regional urban and suburban build-to-rent markets are attracting those taking a long-term view.”

AIMS bought a majority stake in Beech Holdings, a Manchester developer that started out building dedicated student accommodation.

Wasim Choudhury, Beech Holdings director, said he expected 20-25 per cent capital growth between 2020 and 2025. “Covid has accelerated our thesis,” said Choudhury. “Seven or eight UK cities have become acceptable to institutional investors. Yield is higher than in the capital.”

Beech is building more than 1,000 apartments and houses with a gross development value of about £350m in Manchester and Newcastle, and is looking at Sheffield, Leeds and Birmingham. It repurposes old office buildings and remediates contaminated sites.

Founder Stephen Beech said that without foreign investors the UK’s chronic housing shortage would be even worse. “British banks are not interested in regeneration. It is too risky.” One early scheme, Basil House, a converted 19th-century office block in central Manchester, now commands rent of £2,000 a month for a two-bedroom apartment, all bills included. “Students who rent with us want to stay when they get their first job.”

Beech is now concentrating on family homes to diversify its revenue mix.

Manchester city council has wooed investment and in 2014 formed a partnership with Sheikh Mansour bin Zayed Al Nahyan, part of the ruling family of Abu Dhabi and owner of Manchester City football club. Together they are building almost 1,500 mostly private rental sector homes.

The council also has a joint venture with Far East Consortium, a listed Hong Kong conglomerate active in London since 2011, but which started work in Manchester in 2017.

They are building up to 15,000 new homes across north Manchester over the next 15-20 years, a fifth of them “affordable” or meeting needs otherwise not met by the market as defined by the government.

Gavin Taylor, FEC director in Manchester, said the range of blue-chip employers such as Amazon, the BBC and TalkTalk moving to the city along with business-friendly local leadership made it an attractive place to invest.

FEC, with £600m investment already committed across the UK, is now looking at Bristol and Birmingham. It is also switching focus from apartments to family homes. “Covid has caused a reassessment of what life is about. When somebody closes their eyes and imagines their dream home it has four walls and a garden.” That is very expensive in London, he points out.

Alasdair Nicholls, chief executive of Native Land, a UK prime residential property developer that often works with international investors, said their growing presence in areas outside London reflected their experience in the market.

“[For a] new investor deciding to come into the British market, the obvious first touchdown point is London,” Nicholls said. “But we are at a point now where having done that it’s ‘OK, well we can branch out to wherever, Edinburgh, Manchester, Birmingham’.”

Native Land is marketing its first project outside London, a joint development with US asset manager Nuveen of 152 high-end homes in the new St James Quarter complex in central Edinburgh that it says will be worth a total of about £100m.

Native Land, which last year acquired a former department store in Guildford for redevelopment, sees other towns and cities around the UK following Edinburgh and Manchester in trying to make their central areas desirable places to live.

Nicholls said he expected international capital to buy into these opportunities. “I think it’s going to be a really big piece of what we and others do in the future.”