Residential conversions and foreign investment to rise in 2023, Finanze predicts

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  • 03/01/2023
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Residential conversions and foreign investment to rise in 2023, Finanze predicts
There will be more investment in property from foreign individuals as well as commercial and office properties being converted for residential use this year, it has been predicted.

In Finanze’s first annual research report produced by Joshua Ellard, head of specialist finance and research, the specialist broker firm looks into its crystal ball to predict how the housing market and economy could develop over 2023. 

 

A buyer’s market 

Finanze said the shift to a buyer’s market was “well underway” in the owner occupier space and while there is debate over how much house prices will fall, it predicted an annual decline of 10.98 per cent. 

It said London will see the most severe contraction in house prices, with a 15.4 per cent reduction. The North West will see the smallest annual drop in the UK, at 8.2 per cent. 

 

Greater foreign investment

The broker predicted a rebound in foreign property investment this year. This follows a drop from 65 per cent of investments in London being completed by foreign buyers in 2015 to 57 per cent in 2021. It said this was then further suppressed by sanctions imposed on Russian investment due to the invasion of Ukraine. However, Finanze predicts that a weakened pound and a fall in house prices could make investment attractive for foreign buyers in 2023. 

 

Increased rental demand

Finanze said barriers to raising a deposit, such as higher interest rates and inflation, would encourage many to continue renting and increase demand for rental supply. This in turn will result in higher rental rates with a 12.91 per cent rise across the UK. London will see rents rise by 15.81 per cent annually, and excluding England’s capital, rents will increase by 10.14 per cent. 

 

Decreasing demand for office space

The firm said, alongside a decline in GDP, rising costs would lead to more debts and cost reductions for businesses, which would negatively impact the commercial property market. Further, the demand for office space will fall as office-based employment continues on its downward trend and properties will be converted for residential use. 

 

Green office space is the one to watch

It also pointed out that offices occupied by smaller firms did not meet the same environmental and quality standards as larger companies.

Finanze said: “As such, it will be the poorer quality stock that will suffer in 2023, creating opportunities for cheap purchases and refurbishment. The green office space is one to watch in the years leading up to 2025.” 

The firm also said the retail sector had failed to recover from the impact of the pandemic, meaning retail spaces would increasingly be repurposed into residential developments this year. 

Echoing the sentiments of the Financial Policy Committee, Finanze said banks were better equipped to deal with any economic downturns. 

It also noted that while arrears would rise, affordability measures and support offered by lenders would limit the number of forced sales. 

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