Pension Crisis
Increase Property Value
Pension Crisis
People in the UK now live longer. As the government is unable to afford supporting their long retirement, it raised the pension age from 60 to 67 years. So, unless people make their own provision for income in retirement, they have to continue to work until very late in life.
Passive Income
Increase Property Value
Pension Crisis
Property provides the means to potentially generate an ongoing passive income from the property rental (that is money generated when you are not working for it!). Earned rental income can go towards daily living expenses, be paid into a pension or used to fund other investments.
Increase Property Value
Increase Property Value
Could be Purchased ‘Below Market Value’
Despite blips in the property market where prices will fall, over time the value of property steadily increases. Certainly, over the last 25 years, property value in the UK has increased 5 times.
Could be Purchased ‘Below Market Value’
It is Easier to Understand Than Other Types of Investments
Could be Purchased ‘Below Market Value’
Unlike other assets which can be openly traded by people who have all the market information at their fingertips (e.g., stocks and shares), property transaction is between two people, a buyer and a seller. Local knowledge of the property investment area and negotiation skills could secure investors ‘below market value’ properties which are not easily accessible in the open market.
Control of the Asset
It is Easier to Understand Than Other Types of Investments
It is Easier to Understand Than Other Types of Investments
Some investors like the fact that they are in the driving seat when it comes to their assets. In property, the owner input including presentation & marketing could influence the value of the asset when it comes to selling or renting it. This is not the case in some other types of investment where the shareholder has no influence on the company’s finances once a share is bought.
It is Easier to Understand Than Other Types of Investments
It is Easier to Understand Than Other Types of Investments
It is Easier to Understand Than Other Types of Investments
Some people find it difficult to build a good understanding of other forms of investment such as stocks and shares, options, crypto and foreign currencies. Often, there are complex business reasons why their price might rise of fall. Hence, many find property a safer bet than the more volatile financial markets.
An investment pyramid, or risk pyramid, is a commonly used illustration of portfolio investments strategy that allocates assets according to the relative risk levels of those investments. The risk of an investment is defined in this strategy by the variance of the investment return, or the likelihood the investment will decrease in value to a large degree.
At the bottom of the pyramid are ‘cash deposits’ like ‘saving accounts’. These are considered low-risk investment options but equally have low-return on the invested money.
At the top of the pyramid sit high-risk but potentially high-return investments like investing in 'collectibles' or 'Startups'.
A ‘balanced portfolio’ usually combines investments in different asset classes in an attempt to balance the risk and return.
There are two key aspects of property investments that usually attract investor looking at a long term investment or retirement plans; capital growth and cash flow. While the investment property is slowly increasing in value, monthly rental income earned from the property can go towards daily living expenses or indeed be paid into a pension or used to fund other investments.
Some people on the other hand fears market uncertainty and house prices crashing. Eventually, nobody has a crystal ball to truly predict the market. However, risks can be mitigated with the right knowledge, sadly a part of the process that some bypass at their peril.
UK Property Market
General Overview
The UK Property Market is one of the most popular property markets in the world. It has long been an attractive option for both domestic and overseas investors alike. This is due to the strength and stability of the UK market and political system as well as the profitability of UK property investments.
Over the last 25 years, the average UK property price has increased 500%. This growth has been underpinned by a disparity between supply and demand. In the UK, there is chronic undersupply of houses in the face of an ongoing increase in the demand benefiting from population growth, low unemployment and low mortgage rates.
Since the ease of the first UK COVID-19 lockdown in Jun 2020, the housing market has been boiling with an average increase of 23% in UK property value over the last 2 years.
In general and over the years, UK property investors have benefited from both capital growth (increase value of the asset) and reliable monthly returns (cash flow from rent).
Property rental sector
In the UK, any property that is privately owned (whether by a person or a company) and being rented out as housing is classified as Private Rented Sector (PRS).
PRS originally started as a small sector within the UK housing market. However, now it is the fastest growing housing sector with nearly one in five (19%) households live in the private rented sector, making it the second largest tenure (65% owner occupiers, 17% social rented sector).
The continuous rising of housing price has worsened the affordability of homes for first time buyers.
One of the main indices for housing affordability is the house price to annual earning ratio. Affordability ratios calculated by dividing house prices by gross annual workplace-based earnings. In 2021, the ratio in the UK increased to around 9.1 from 7.9 in 2020 making it more difficult to first-time buyers to climb on the property ownership ladder.
Difficulty for people to buy homes means the demand on property rental will likely continue to rise pushing rental prices higher. Rightmove 'rental price tracker', reported an average 12% hike in rental prices in the second quarter of 2022 over the previous 12 months.
The current boom in living costs (inflation) and interest rates will likely make things even tougher for first time buyers.
Naturally, the demand for rental properties will hence likely continue to rise. As it was before the current economic situation, the supply of rentals was falling well behind target, so today there is an ever-greater shortage of suitable rental prosperities in the face of a higher demand which will likely continue to boost rental prices.
Tips on choosing your investment
As an investor, you might have a lot of potential investment deals coming your way. Like many successful investors, you would always want to develop your portfolio working on new streams of success while breaking out of your comfort zones.
However, this needs to be aligned with careful due diligence and assessment of all new investment opportunities whilst continuously reassessing the return and viability across the investment portfolio (investment is an ongoing process).
Every investor develops their own way of assessing potential opportunities. In general, when assessing new investments, you should:
1. Assessing the Investment Opportunity itself
- Does the investment align with your investment philosophy and ethics?
- What is the risk/profit profile of the investment type?
- Are you happy with the investment profit margins? Be aware of schemes which promises very high profits. If it's too good to be true, it probably is!
- What are your investment’s exit strategies?
2. Assess the team or company you are investing/getting involved with
- Who are the founding team and current leaders?
- What is their vision?
- What is their journey to date?
If you are investing in a small company, knowing the founding team is paramount. Trust, knowledge and the passion to drive their business and keep it moving forward in difficult times are essential.
Other areas to look at is what the company has achieved so far. You want in general to see a track record showing that the running team is able to execute similar projects and that they have the quality and capability to deal with future ventures.
When it comes to public companies on the stock exchange market, you need to know the company’s reports on profits and margin targets as well as the risk profile of the venture. This alongside understanding the general trends in the market before making decision to invest in it.
Our Team
