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Record London rents lure overseas landlords to house market

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The falling pound has made it cheaper for overseas investors to buy homes using their local currencies.

London

The UK's struggle to secure a favourable Brexit deal is making London's battered buy-to-let market attractive overseas again.

Foreign-based landlords owned 12 per cent of the homes rented out in the capital at the end of the first half, up from 7 per cent last year, according to a report by Hamptons International.

The falling pound has made it cheaper for overseas investors to buy homes using their local currencies, and many have been lured by a red-hot rental market that's still at record levels.

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"I was convinced rents would drop as people fled the UK after the Brexit vote. In fact, everyone was expecting armageddon," said Agus Marcos Blanco, a 39-year-old pharmacist in Barcelona who shelved plans to purchase a London property immediately after Britain voted to leave the European Union in 2016. Now, with rents having stayed buoyant, he's looking for a buy-to-let investment in the UK capital.

It's not an entirely rosy picture for foreign landlords. By some measures, growth in the rental market has cooled or even declined.

According to the latest available data from the the Office for National Statistics, rents in the capital slipped 0.3 per cent in July from a year earlier.

Falling home values could easily wipe out any rental yields earned by landlords, as Britain's housing market grapples with the impact of Brexit and rising interest rates.

UK home prices fell 0.5 per cent in August from a month ago, the biggest monthly drop since 2012, Nationwide Building Society said last Friday.

Still, the jump in foreign interest is a boon for London's real estate market as many domestic buyers have turned away after being priced out.

The imbalance between supply and demand in London has pushed average rents to £1,615 (S$2,872) a month, according to Homelet, the UK's largest tenant-referencing company. That's the highest since it began collating the data in 2011 and 72 per cent above the country-wide average of £937 per month.

Juan Guerrero, head of foreign-exchange trading at Banca March SA in Madrid, estimates the pound could bounce back as much as 15 per cent against the euro if the UK negotiates a successful EU divorce deal.

While the pound has rallied in recent days as the prospect of a no-deal Brexit has appeared to diminish, some forecasts have the pound sliding towards levels versus the euro last seen in 2009.

That would mean rental returns would be worth less when converted back to a landlord's own currency. BLOOMBERG