Why is the Alternative Property Investment Market Overtaking Buy-to-Let?
Though the UK economy is far from fully recovered, the property market has remained strong for months – and presents an opportunity for investors.
Sezer Sherif, Founder and CEO of investment group Vector Capital, explores the strengths of alternative property investment in the UK.
There is no question that COVID-19 has completely torn through the UK economy, with signs of initial recovery towards the end of 2020 largely dashed as the country continues to navigate through a third round of lockdown restrictions.
Yet, one sector that has continued to fair well despite initial and ongoing restrictions is the residential property market, with data from HM Revenue and Customs confirming an estimated 129,400 house sales in December 2020 – which was nearly a third (31.5%) higher than December 2019 and 13.1% higher than in November 2020.
However, according to a recent study by Citizen’s Advice, the same positive stats cannot be reported for the rental or buy-to-let sector, which found that almost a third of renters across the UK had lost income during the pandemic and 11% were in rent arrears. Furthermore, the number of private renters behind on their rent has also doubled over the last 12 months.
In addition to the challenge of rent arrears, landlords haven’t been able to generate viable yields on buy-to-let for a long time, with evolving landlord taxes resulting in an average annual return of 3.53% for the UK market; a figure even considered to be ‘over-performing’.
When compared to the projected returns and no hassle promise of property bonds, it is clear to see why hundreds of thousands of landlords are now selling up and reinvesting funds into the alternative market, with COVID-19 standing as the final catalyst for making this change.
Asset-Backed Investment, No Hassle
In brief, alternative property investment enables high net worth or sophisticated investors to invest funds into the construction of large-scale property developments, without the hassle of actually owning or managing it.
By essentially ‘lending’ funds under a legally binding agreement, which usually comes with a fixed rate of return, investors don’t have to worry about managing tenants, finance or maintenance issues and instead reap a financial reward of between 6 – 10% for helping to fund the build – a somewhat significant increase when compared to buy-to-let.
Savvy Investors Diversify
The COVID-19 pandemic has completely obliterated many investment channels in addition to buy-to-let, with the stock market having also taken a serious hit – something repeated when details of the new COVID-19 variants came to light.
However, the savvy investor has been circumventing volatile markets for years, particularly following the Brexit referendum several years ago together with political uncertainties overseas.
Although COVID-19 has taken investment challenges to a new level, it is these periods of uncertainty that force investors to think differently and to diversify their portfolio and investment decisions in order to make viable returns.
The alternative property investment market is one such route, and with construction not impacted by secondary lockdown restrictions, both developments and resulting returns are more likely to remain on track.
As it stands, there is no definitive end to the current COVID-19 pandemic. However, the initial pangs of panic have disappeared and there is definitely a stronger resolve amongst business leaders, developers and investors to fight back, disrupt and diversify, where one great place to start is with the alternative property market.