I know it’s hard to believe, but it is now possible to buy your own home for under a quarter of a million bucks.
From a cool quarter mil’, you’d have enough left over for a couple of flights to London. Not a bad deal!
In fact, buying a house this way will save you a respectable 58% from the $580,000 price tag of the average Aussie home today.
So … what’s the catch?
The catch is this – the housing I’m talking about is in the UK.
But bear with me. This opportunity may surprise you.
Three things have happened to make UK property almost irresistibly cheap for Aussie buyers.
Secondly – the British Pound has fallen on very hard times. Ten years ago the Aussie bought 33 pence, but today it buys 68 pence. That makes it painfully expensive for people travelling from the UK to Australia, but it’s great for Aussies.
Thirdly – UK property has now fallen 25% in the last 5.5 years.
Combine those three and you get some very interesting statistics indeed. Let me show you what I mean…
Back in 2006, an Aussie buying the average UK investment property had to shell out A$516,233.
But today you can buy it with LESS THAN HALF THAT MUCH…in fact it will cost you just A$245,242.
To show you just how much cheaper it is for Aussies to snap up a UK property today, I’ve downloaded the quarterly data for the last two decades and put this chart together for you. Now, I should point out I’ve used inflation adjusted prices here, to better benchmark the relative move.
To my eyes this chart looks like a cracking long-term investment opportunity for Aussie house buyers wanting to diversify their property exposure, and capitalise on the currency rate.
That’s for an investor that doesn’t mind long flights, and is prepared to wait for ten years or more for a result! But while the property spruikers have been flogging American housing in some ropey old town five hours from nowhere…at least UK property puts you on the doorstep to Europe…where Paris, Rome and Madrid are only two hours by flight.
None of this is to say it won’t get cheaper first though. The UK is really in the doldrums right now.
While here in Australia, we worry about the economy slowing from 3.7% to 3.1%, the UK is now slipping into its THIRD recession in five years.
And Moody’s rating agency recently downgraded UK debt, taking away its coveted AAA rating. Further downgrades from Moody’s and others could follow.
Not to mention that UK unemployment is at 7.8%, and creeping back up again.
All this could drive the pound down further too, making it cheaper still for Aussies to buy in coming years.
But that’s fine – something like this takes time to transact. You’d need plenty of time to investigate the specifics.
For example: you’d need to research the tax implications, and legal requirements, of buying and selling property overseas.
You’d then need to take time study the market, because it is as diverse and varied as Australia’s. Any property market is like the stock market, many different sectors and subsectors: some good, and some bad.
The ‘average’ prices I’m quoting here hide a huge range of prices. For starters, London may as well be a different country – its property is three times more expensive than the average. But the Midlands and South West is far more reasonable. And go up to Northern England, or Scotland, and they’re practically giving it away free.
So you would of course need to actually spend time over there looking at property, or find a buyer’s advocate of trusted friend to do the looking for you.
And then you’d need to hook up with a rental agency to let it out on your behalf.
By the time you’ve done all that, a year or more may have passed, and you might well find the market bottoming by then anyway.
For investors with some pommy ties, or mates based over there they could trust with their hard-earned, this could well be the property trade of the next ten years.
You’d need to first wager that the UK economy will stop falling into recession on a regular basis, and that it starts to recover at some point in the next few years. Generally day tends to follow night – sooner or later.
It would also involve taking a punt on the exchange rate swinging the other way: so the Aussie calming down and the pound recovering. In case you’re wondering, I used monthly average exchange rates from here to be consistent with the format of the house prices.
In effect you’d be punting on a UK housing recovery, an improving Pound, as well as on a falling Aussie dollar. If the stars lined up, it would be a leveraged play.
Why else would you invest in another market like this?
I’d give two reasons.
Firstly – looks not overlook the key fact here – it is CHEAP!
Buying a house for $245,000 is a hard thing to pass up.
Average rent in the UK is the equivalent of $30,000 a year, so rent could cover a decent chunk of a typical mortgage. The mortgage rate would of course depend on if you set up a mortgage here or in the UK, but you can see right away that you wouldn’t need a huge deposit to make this work.
Secondly – you would be diversifying your assets.
What if Australia has a house price crash?
The chance of that may feel like it’s passed for now, but who really knows what’s in store for the ten years ahead?
But if you had picked up a bit of Pommy property on the cheap before that happened, then you might find yourself nicely hedged. China’s economy blowing up would see the Aussie Dollar tank, taking the value of your Pommy property soaring.
You shouldn’t buy a house over there though, without doing the relevant due diligence, and thinking about what could happen if the pound weakened further and UK house prices continued to fall.
Many young Aussies who work in the UK bought property right before the crisis, expecting it to be their nest egg. They’ll have seen the value of their investment (in Aussie dollar terms) more than halve; and the yield from any rental drop with the exchange rate, by 40%.
In short, there’s definitely an opportunity for a shrewd investor. If you follow the investment maxim of buying low and selling high, then buying a piece of the UK housing market right now could make a lot of sense.
Dr Alex Cowie
Editor, Diggers & Drillers
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