As well as being a global crisis for humanity, COVID-19 caused an unprecedented shock for the world economy, with an estimated 3.5% fall in global output in 2020. Despite this, the property market has remained relatively consistent throughout the pandemic. The main reason for this stability is the ongoing housing shortfall in the UK, with government targets to build 300,000 new homes a year just to meet increasing demand. This demand is expected keep the rate of house price growth consistent – great news for property investors as the latest House Price Index revealed that house prices are up 8.6% in the year to February 2021.
A balanced property investment portfolio can provide a stream of regular income in the form of rental yields as well as long-term capital appreciation over time. Investors can also benefit from tax breaks and reductions such as stamp duty, as well as the comfort of knowing they are investing in a physical asset with limited supply and increasing demand.
Property vs. stocks
But how does the property market compare with others? The main benefit of investing in stocks and shares, for example, is they cost less than property and can generally be traded easily, but with these benefits comes a greater market risk.
Although the outbreak of COVID-19 pressed pause on the property market, stocks were hit harder. In fact, stock market index S&P 500, experienced a searing decline of more than 30% in March 2020. Although stocks have since recovered, the nature of the market is more volatile. It was a similar story in the Financial Crisis of 2008 – whilst the UK property market fell by an unprecedented 20%, the stock market plummeted in just a few weeks and by 2009 the Dow Jones fell by 50%, the biggest fall in the stock market since the Great Depression in 1929.
As written by Forbes, ‘it’s impossible to adequately compare the returns of privately held individual real estate investments to the broad-based stock market’. Despite this inability to accurately compare returns, the risks of the stock market do stack up higher. Summarised by Knight Frank: ‘As a tangible asset property investment offers security for investors that can protect against currency fluctuations and the increasingly erratic nature of the stock market and commodities.’
How can you reduce your risk when investing in property?
Research high-demand locations
It’s important to research property locations and make sure there is potential for high demand and strong rental yields. Birmingham and Manchester, for example, are performing better than the national average in terms of rental yields due to their consistent tenant demand and property prices compared to London. Birmingham’s average property value is nearly three times less than London’s and yet rental values have risen by 30% over the last 10 years and are expected to rise by 15.9% over the next four, delivering stronger returns for buy-to-let investors.
Diversify your interest
By diversifying your portfolio, you’re reducing your risk. Most seasoned property investors have properties in different locations, or different types of property to deliver different objectives. For example, purpose-built student accommodation in city centres typically delivers stronger yields as they cost less and have high tenant demand. However, these properties are unlikely to get the same capital appreciation over time as a purpose-built luxury apartment in an iconic city-centre skyscraper. By having both, you can expect healthy, balanced returns in the form of passive income and long-term capital growth.
Invest with a reputable property developer
A reliable property investment company will take a consultative approach, starting by discussing your objectives to give you the most relevant information and support to help you make your decision. A property investment plan should be created, with a dedicated point of contact and a team on hand for each stage in the investment process. It’s also important to have an exit strategy, should you want to sell your property later down the line. Select Property Group provide an end-to-end service with dedicated teams for each stage of your investment journey, including an in-house brokerage to manage your exit strategies.
Although property is a stable investment, any investment comes with risks. House prices can fluctuate, rental properties can be empty for periods of time, and selling your property isn’t always straightforward. In order to reduce those risks, it’s important for any investor to conduct thorough research into the market, property type, location and developer.
The future of property investment
With expected growth of 7.25% in 2021, the UK economy is certainly on a strong path as COVID-19 restrictions ease. Paired with the 8.6% annual house price growth, the property market is looking as stable as ever. But what will the future of UK property investment look like?
With purpose-built rental homes becoming the modern city-centre home of choice for millions of tenants across the UK, there has been a significant change in tenant demand and priorities. Tenants are placing a greater focus on amenities such as communal outdoor green space, larger living areas, fast and reliable Wi-Fi, on-site facilities including a gym and spa, and a pet-friendly policy – trends accelerated by spending more time at home due to lockdown. These tenant demands are only expected to increase as Gen-Z, the generation known for being digital natives, take up more of the rental market. Keeping up with tenant demand by investing in purpose-built luxury apartments in prime city-centre locations is likely to deliver strong returns.
The increasing demand for city-centre living is not expected to slow down, either. The JLL report, Home is… for everything, detailed that in 1800, less than 10% of the world’s population lived in urban areas, compared with more than 55% today and more than 80% in the UK.’ With this increased appetite for city living, purpose-built apartments in prime city-centre neighbourhoods have become a lucrative investment opportunity.
Prime investment cities include Manchester, Birmingham and Leeds, with recent figures showing that population growth in Manchester is increasing at twice the national rate, making the city a prime beneficiary with a large buy-in from investors. Demand in Birmingham is also at an all-time high as the UK’s second city embarks on an exciting new growth curve. In fact, JLL projects that Birmingham’s house prices and rental values will remain flat in 2021, then increase by 4% and 3.5% in 2022, making now an ideal time to invest.
Finally, off-plan property investments are increasingly popular as they allow investors to secure the purchase at a discounted price ahead of capital appreciation over the build period, giving them instant equity in the property at the point of completion. Read more in our blog on 5 Reasons to Consider Investing in Off-Plan Developments.
In summary, savvy investors build a diverse portfolio of assets, with the objective to spread their risk and enjoy returns in the form of passive income and long-term growth. These objectives are all possible with a balanced property portfolio, understand why short-term and long-term lets are both lucrative property investment options. Whilst all investment comes with risk, the predictions for the UK economy paired with the stability of the market make property investment a stable, lucrative investment opportunity.
At Select Property Group, we specialise in off-plan high spec developments in the UK’s strongest investment locations. Find out more about our latest investment opportunities.