Not all investments are created equal in their potential returns and risks.

The UK's water industry, heavily foreign-owned and deeply neglected, is not the only sector experiencing a foreign influx. The UK government, under Chancellor Rachel Reeves, is actively seeking to develop a commercially attractive pipeline of investment opportunities for a global audience.

Foreign entities hold a stock of foreign direct investment (FDI) in the UK worth over $3.2tn, the third highest in the world. European investors, particularly from Germany and the US, are the most frequent foreigners purchasing real estate in the UK. London, with its international capital, attracts the majority of these investments, while cities such as Manchester, Birmingham, and Leeds offer higher rental yields.

This foreign investment is notably impacting the residential and commercial property sectors in urban areas. London remains a key high-value market, while regional cities experience growth through rental income and value appreciation. However, foreign ownership contributes to the increase in rents in the UK, with average private rents rising by 6.7% over the past 12 months, reaching an average of £1,399 per month.

Rents in the north-east have risen by 9.7%, a joint record increase. This trend is a cause for concern, as foreign purchases typically target existing homes, raising demand and prices without significantly increasing supply. In an effort to curb this trend, Australia has banned foreign purchases of existing properties, while Canada extended its ban last year.

The UK applies an additional duty of 2% on foreign property purchases, making it an international outlier among nations with overheated property markets. However, academic studies suggest that this type of investment often brings little-to-no benefit and can lead to reduced innovation and greater use of tax-avoiding accounting tricks.

In an attempt to direct foreign investment towards productive parts of the economy, the UK government is promoting its investment plan. Prime Minister Keir Starmer and Chancellor Rachel Reeves have toured the US, Davos, the Middle East, and east Asia to promote this plan.

One proposed solution to address the issue of foreign ownership in UK housing is to increase the stamp duty surcharge. NEF research suggests that tripling the current surcharge to 6% for non-residents could raise £300m-£400m annually and cover the public grants required to build over 2,000 social (council) homes every year.

Meanwhile, other countries are taking more drastic measures. Spain has announced plans for a tax of up to 100% on property purchases by non-EU residents, while Singapore, which has been progressively increasing its additional buyer's stamp duty (ABSD) on foreign purchases, with the current rate at 10%, has seen an improvement in rent affordability due to these measures and a decrease in speculative investment.

As the UK continues to attract foreign investment, it is crucial to ensure that this investment benefits the economy and its people, rather than driving up housing costs and reducing affordability.