In one way or another, we all participate in the property market – whether that’s as renters or owners of our homes.
But for two million people, the UK property market has also been an investment vehicle of tremendous wealth generation across recent years, with buy-to-let attracting £1.4 trillion in capital.
Buy-to-let has been a national obsession. In the past, it was an investment that seemed to require little in the way of privileged financial markets insight. It was simple to understand and manage, and boasted a steady (and in many cases heady) performance record – comfortably outstripping inflation and enriching those fortunate enough to participate.
Under scrutiny, the returns for many property investments have barely compensated for the hassle
That’s not to say there were never any downsides.
The hassles of managing tenants and maintaining properties have been routinely underestimated, typically to the detriment of tenants.
And though rental incomes ought to provide steady cashflows to defray ownership costs, the reality of buy-to-let has always been closer to running a business than sitting on a hands-off yielding investment.
Under scrutiny, the returns for many property investments have barely compensated for the hassle – let alone for the risks and costs of tying up so much capital in inflexible, undiversified assets.
Pressures on buy-to-let have intensified in recent years, particularly from HMRC.
A slew of changes to tax and lending rules and the prospect of tenant-focused legislation – which appears to have cross-party political support – have made direct investment more financially unattractive.
As tax returns are filled in and re-mortgage applications processed, landlords would be remiss not to consider whether the maths on their buy-to-let properties really adds up any more.
So where does this leave would-be investors?
Buy-to-let as an investment structure may be dying, but property as an asset class remains undeniably attractive.
In fact, recent data from the Office for National Statistics revealed that almost half the population think that property is the best way to save for retirement.
Sitting somewhere between cash savings and financial markets investments, bricks and mortar has proved its value and resilience.
Taking rental yields into consideration, UK-wide property market returns have only been negative in 23 quarters since 1980, and are down more than three per cent in only five quarters.
Compare that to the FTSE, which fell nine per cent between January and March of this year.
There’s simply a difference in volatility of performance and defensiveness of the asset class that makes residential property investment attractive.
Behind the sensationalist property market headlines of late, the fact remains that there’s a shortfall of somewhere between 50,000 and 100,000 houses built per year, adding to a standing deficit of more than one million, according to Yorkshire Building Society.
People will always need somewhere to live.
So how can you invest in property more flexibly and tax-efficiently, and minimise transaction and ownership costs?
Few other assets are traded as inefficiently as property is today, but technology has been slow to transform the market’s structure despite the clear market opportunity.
Options are beginning to appear, such as peer-to-peer or equity crowdfunding platforms that specialise in – and help finance – property.
There are now opportunities to lend to property developers and buy-to-let landlords, albeit some would question how close such a debt product is to property investment at all.
For true investment in bricks and mortar, there are a host of property crowdfunding sites offering fractional ownership of individual properties, as well as platforms offering tax-efficient investments in portfolios of residential property around the UK.
Whatever tomorrow’s property investors choose, they should be careful not to throw out the “common-sense” principles that abandoned the buy-to-let market a long time ago.
These principles include diversification, using Isa and Sipp allowances where possible, and a recognition that buy-to-let investors would rather not be called about a broken boiler at 3am.