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Buying property has long been a popular investment strategy. While no investment is guaranteed, as an asset, property can allow investors to achieve capital growth without incurring an extreme level of risk or volatility. And, by putting the time in, investors can enjoy a predictable stream of income from rental yields.
Despite this, research by the Intermediary Mortgage Lenders Association (IMLA) showed that net investment in buy-to-let property has fallen by 80%, from £25 billion in 2015 to just £5 billion in 2017.
This dramatic fall can be attributed to a multitude of different factors. The IMLA calls out excessive regulatory intervention and the implementation of new tax measures as key factors deterring landlords from investing. As a result of tax changes, 21% of landlords have indicated that they plan to reduce the size of their portfolios.
However, it is not just regulation deterring potential property investors. We should not underestimate the onerous nature of property investment – from buying, to holding and eventually selling – which prevents investors from entering the market.
Today, investors are required to conduct research, secure financing and work through the closing process, all before making the initial investment. This can take months and when it’s finally complete, they are then saddled with the responsibility of managing the property, including maintenance, repairs, insurance claims, vacancies and tenant issues, all of which are likely to incur unexpected costs. After all of that, selling the property to realise the capital gains can take just as long as buying the property in the first place.
The culmination of these issues means that many cash-rich, time-poor UK investors are put off investing in property.
This shouldn’t be the case. In the UK, despite recent falls in some areas such as London, property remains an attractive investment. Indeed, the average price of a UK home increased by 3.2% from August 2017-18, to £232,797, with the strongest growth in the East Midlands, where the average price growth was 6.5%. Prices can of course go down as well as up.
In addition, research suggests that the average rent in the UK is expected to grow by 0.9% in 2018 and, despite rising costs from recent regulatory and taxation changes, landlords could expect to see significant returns from long-term property investment. A typical property can generate a total profit of £369,495 (including rental yield and capital appreciation) over a 25-year period.
So how can more investors access the property investment market? It’s clear that property investment is well overdue a refresh. In order to inspire and incentivise landlords to make investments in residential property, the market must be brought into the digital age and the whole process made less onerous for investors.
One solution would be to create a structure that treats property in the same way as stocks and bonds, allowing investors to buy, own and trade property. Such a structure would allow investors to invest in individual properties without having to worry about the hassle of sourcing, acquiring and managing property. Instead, investors could enjoy the benefits with fewer of the drawbacks traditionally associated with ownership.
Through this model, investors could enjoy access to rental income, capital appreciation and ease of trade in high growth, high performing markets, without being confined to the geographies they’re already familiar with.
Could this model be the future of property investment and one step on the path to reviving the prosperity of the buy-to-let market in the UK and beyond?