The COVID-19 pandemic has transformed the world as we know it. This unprecedented series of events has had a dramatic impact on the economy and while the headlines have been all doom and gloom, this shifting economic landscape has actually created new and unexpected investment opportunities for those savvy enough to find them.
When we look at things from a property investment perspective, there are plenty of exciting prospects. Many investors will have used the time during lockdown to rethink their ambitions – traditional equity investments such as pensions and ISAs have been negatively impacted while bond yields have also been persistently low.
With so many FTSE 100 companies having decided not to issue dividends this year and additional companies slashing dividends significantly, these circumstances have collectively led individuals to seek out alternative income assets in sectors that offer stability even during market fluctuations. Niche sectors of the property market are one key example.
Buy to let has never been more appealing, as investment into student property skyrockets and overseas investment including a Chinese-led house buying boom prove that the UK property market has by no means lost its appeal. Savills have forecast that 2020 will continue to see impressive investment volumes including high demand from overseas, especially for high quality student accommodation. International investors in particular continue to be attracted to the affordable property on offer in the North West in close proximity to world-class higher education institutions and the strong net yields associated with such properties.
While we no doubt have more market peaks and troughs ahead of us, property investment still remains a solid long-term opportunity with bricks and mortar consistently sought-after thanks to its safe and solid credentials. Indeed, investing into infrastructure makes good sense in the current economic environment proven by the fact that experts report that “the current margin of property yields to 10-year gilts is 6 per cent” – this is the widest margin ever recorded.
The fundamentals of our property market remain by which low supply and high demand across the UK mean ample opportunity for good yields and solid, regular rental income. Interest rates look set to remain low for the foreseeable future, too, with great scope for market growth even as the COVID-19 crisis continues.
The benefits of reliable income in a low interest rate environment against a volatile economic backdrop speak for themselves with property investments fully asset-backed for extra reassurance. Investors can also enjoy assured monthly returns if location and property are chosen effectively, i.e. one of the many UK investment hotspots.
In addition, property prices are increasing all the time. If inflation increases as predicted, house prices will rise again meaning an even more enhanced level of growth from original investments.
While the fundamentals of the UK property market remain strong with great scope for growth, the build to rent sector offers some of the best opportunities in the current climate. Prices for off-plan developments won’t be impacted in the same way as other mainstream property might be due to the lead times for build.
In addition, those developments being built with experienced and established partners are fully able to withstand the delays and other disruption that the pandemic has brought, and to get through to the other side of the pandemic with accommodation that offers high rental returns and strong capital growth over the next decade and beyond.
One key element of the property market that has become more apparent since the pandemic is the huge gap between supply and demand. As demand for short-term accommodation such as Airbnb homes has dropped, it has highlighted how the growth of online holiday lettings in recent years has left communities in dire need of permanent homes.
Figures from the BBC’s Housing Briefing estimate that we have built 1.2 million fewer homes than we should have and demand is increasing all the time, especially in cities such as Liverpool and Manchester as well as smaller northern cities. There is particular demand for affordable accommodation that is more difficult to come by and demand is especially fierce in the North West with property investment returns responding in kind.
Secondary and Tertiary Towns
Prior to the pandemic, we witnessed impressive returns on buy to let in locations outside London and the South East; namely, we saw towns and cities across the Northern Powerhouse become increasingly lucrative in terms of property investment returns and there’s a bright future ahead with millions of pounds of ongoing inward infrastructure investment and key projects such as HS2.
The pandemic has only fuelled demand for such locations as many individuals and families seek to relocate and find a better quality of life outside expensive, polluted cities such as London. This has meant a spike in interest in more rural locations including the secondary and tertiary towns of the Midlands and North where property prices are far more affordable but demand is strong. Investors should look to those local economies where a blend of high demand for quality property and substantial inward investment is translating to high yields for buy to let investors.
This might mean considering lesser-known and smaller property investment hotspots with prospects for long-term capital appreciation, as well as the more popular northern cities such as Manchester, Birmingham, Liverpool and Leeds where demand is strong from people leaving the high prices and intense pace of life in London for an equally exciting but much more affordable way of life.
With Savills predicting house prices to increase by an average 15.3% across the UK by the end of 2024, it is clear that property investment remains a strong and reliable asset class with investments featuring potential for high capital appreciation. This is a market that has proven it can withstand even the toughest economic recession and continue to offer prime opportunities across the board.
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