Recent years have seen a significant shift in the property investment world. The dream of owning buy-to-let properties has become less appealing for many, thanks to skyrocketing borrowing costs and a thickening web of regulations. However, this doesn’t mean that the road to building wealth through property is closed. In fact, there’s a silver lining for those looking to invest in real estate without the hassle of becoming a landlord.
Why Consider Property Investment?
Property investment is traditionally viewed as a stable and lucrative avenue to generate income through rent and potentially benefit from capital growth if property values increase. It’s also a strategic move to diversify investment portfolios, which might already include equities and bonds. However, the current climate—marked by high interest rates and evolving work patterns—poses challenges, leading to a dip in property valuations and a slowdown in market activity.
Despite these hurdles, some financial analysts are optimistic. For instance, Morgan Stanley has given a nod to housebuilder Persimmon’s shares, highlighting its improving sales and the potential stabilisation of mortgage rates. Additionally, the allure of investment trusts, currently undervalued, suggests promising opportunities for those with an eye for bargains.
Property Funds
Property funds emerge as a prime choice for investors keen on real estate without direct ownership. According to Sheridan Admans from the investment platform Tillit, property funds offer a cost-effective route to benefit from property appreciation and rental yields. Yet, investors are advised to tread carefully, as not all property funds are created equal. The fund’s structure, property access method, and the geographical location of its assets can significantly impact its performance.
Recent years have witnessed the closure of several high-profile property funds, underscoring the challenges within the sector. The inherent liquidity mismatch in open-ended property funds—where assets are illiquid yet investors can trade daily—has led to notable issues, especially following the Brexit vote and the pandemic.
In contrast, closed-ended funds, such as Real Estate Investment Trusts (REITs), offer a more stable alternative, with their fixed capital pool shielding them from the direct impact of investor activity. TR Property Trust and PRS Reit are highlighted as compelling options, with the former focusing on listed property shares and the latter on new-build family homes in the private rental market.
Shares in Property Companies
The UK’s chronic housing shortage presents another investment avenue—shares in property companies. Companies like Vistry and Persimmon, which are actively involved in addressing the housing deficit, are positioned to benefit from the government’s ambitious housing targets. Despite the challenges posed by interest rate fluctuations and construction costs, these companies offer promising prospects, underscored by their significant yields and strong market positions.