5 changes you need to know about the UK residential property investment landscape

1. Political changes: exaggerating, but not causing a slowdown

For the last few years, the impact of Brexit, and the uncertainty associated, has been the first question investors ask about. Newspaper headlines suggest that current political uncertainty is the cause of housing market doom. Contrary to popular opinion, the evidence suggests otherwise. Uncertainty is compounding existing issues, not causing them.

2. Economic changes: guiding long term demand increases

The economy has a big impact on investment. Yet demand for housing has a relatively low correlation to economic demand, as we all need a roof over our heads. This is one of the most attractive things about investing in residential property.

3. Social changes: Growing demand for affordable, quality housing and yield-focused investment

Population growth and demographics mean more, smaller households, and higher demand for housing. The number of families in the UK increased by 8% in the 10 years to 2018. Millenials are settling down later, household sizes are shrinking, compounded by a higher divorce rate, and healthcare improvements mean people are living longer overall.

4. Technological changes: making investing more accessible

Technology is opening up access in the property market, as well as increasing efficiency and quality for cost. ‘Proptech’ has grown exponentially in its impact, often at little or no cost to the user. Online listing portals such as Zoopla and Rightmove have opened up access to opportunities, and data. More digitised processes, such as Customer Relationship Management software, are making management easier, cheaper and faster. Digital and online booking capabilities, for example through Air BnB, enable homeowners to flexibly rent out space and mean people can move around more easily. The growing impact of online and hybrid estate agencies and lettings services, data platforms and the tokenisation of real estate through alternative finance are improving accessibility, to specific opportunities and information.

5. Legal and regulatory change: shifting the balance of power from smaller investors

Legal and regulatory factors are perhaps the most important cause of change in the UK property market. There’s cross-party political will to solve the housing crisis, and professionalise the sector. The increased cost and administrative burden of staying on top of more regulations discourages small investors with a few buy to lets. Armchair investment is less profitable, and more challenging and time-consuming.

  • The Stamp Duty Land Tax surcharge (an additional 3% on top of this transaction tax) makes buying more residential properties to hold or develop less attractive. With the surcharge, SDLT would be £9,000 rather than £2,100 on a purchase price at about the average of UK properties, £230,000.
  • New lending standards from the Prudential Regulation Authority have caused friction on the financing side. For landlords with 4+ properties, borrowing is harder.
  • Greater scope of licensing means strong and specialist local and national market knowledge is required by active parties.This includes more, and more stringent local and national regulations, from national House in Multiple Occupancy (HMO) licensing, to selective licensing of private rental properties in specific geographies.
  • The Tenant Fees Act of 2019 shifts costs from the tenant to investors, meaning lower returns to traditional buy to let investments.
  • Other taxes such as the Annual Tax on Enveloped Dwellings add to the cost base and administrative burden of property investment in company structures.
  • Meanwhile, tax reliefs such as for Build to Rent (scaled development then holding), or REITs (funds which focus on holding property) make institutional investment easier, and make it harder for smaller investors to complete.

Conclusion

The fundamental forces of supply and demand have not changed. We all still need to live somewhere, and housing supply is inevitably restricted. What investors want and need has not changed, either. Investors still love the idea of stability, ongoing profits, and a way to grow wealth safely, without too much effort.

About the Author:

Anna Clare Harper is a Property Investment Strategist and CoFounder of Anglo Residential, a UK residential fund that has secured seed funding to build a £100m+ portfolio of high yielding housing. She also heads up Strategic Property Investing, a boutique consultancy. She is soon to publish a book with the same name, focused on supporting private clients seeking a clear approach, in this complex environment. She hosts one of the highest-rated podcasts in the UK ‘property investment’ space on iTunes. Previously, she led her own investment businesses, studied the property market academically at Cambridge, and been a professional consultant in Strategy and Private Equity, at Deloitte.

References:

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/775002/EPLS_main_report.pdf

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