Property investment dates back centuries – millennia, even. As a fundamental necessity for post-nomadic humanity, residential and commercial real estate have been highly sought-after assets for as long as written history records date back.
Naturally, however, the world of property investment has evolved as time has passed. In the past 100 years, the development of the mortgage market as a means of financing property purchases, and the establishment of real estate investment funds (REIFs), have fuelled the amount of capital flowing into bricks and mortar.
Simply put, property is the world’s biggest store of wealth; Savills estimates that the value of all the world’s real estate reached $326.5 trillion in 2020. Investors will want their slice of the proverbial pie, but crucially, the way they go about accessing and profiting from property investments continues to evolve.
The changing face of buy-to-let
Buy-to-let has perhaps been the archetypal mode of property investment in the past century. Landlords – individual or institutional – own buildings that are then rented to tenants, with the potential to combine long-term capital growth on the asset’s value with the ongoing rental income.
The appeal is obvious – just look at the growth in UK house prices. In January 1993, the average UK house price stood at around £53,500; fast-forward 30 years, and this figure had risen to £290,000. Meanwhile, average monthly rents currently stand at £1,190 across the UK.
Readers will know all this. They will also know that BTL investing is not as simple and, for the most part, not as attractive as it once was. Reforms to mortgage interest relief, additional stamp duty, regulatory changes in the rental market, upcoming rules around energy performance certificates, and now higher interest rates on BTL mortgages – these have all added significant cost and complexity to a BTL portfolio.
Indeed, headlines about an “exodus” of landlords from the BTL market are now commonplace. Such predictions are undoubtedly overblown; the majority of landlords do not intend to sell any of their properties in the coming year, let alone entire portfolios. But it is safe to say there has been a notable shift in the property investment space, with BTL no longer the modus operandi of all investors.
Retail investors and real estate
Today’s property investors are not just people in their 40s, 50s or 60s who have built BTL portfolios. Nor is real estate investment the reserve of high net-worth individuals and institutions. Today, property investment is increasingly open to all retail and sophisticated investors.
That is due to converging trends. The first is advances in technology within the investment sector – app- and web-based investing has become increasingly prevalent over the past two decades, playing a particularly important role in disintermediating investment opportunities. Brokers, asset managers and advisers are no longer the gatekeepers that control who can pursue a particular investment, with easy-to-use and easy-to-access technology creating a more equitable investment landscape.
Underlining this point, late last year Shojin commissioned an independent survey of 690 UK adults, all of which had investment portfolios worth in excess of £10,000 (not including savings, pensions or property that is used as their primary residency). According to the research, almost half (48%) of retail investors said that in the past five years, online and mobile investment platforms had opened up new investment opportunities that they could or would not have accessed before – and among those aged 18-34, this figure leapt to 73%.
The second trend is the rise of alternative investments, including fractional property investments and peer-to-peer lending. In other words, a shift from equity-based real estate investing – where the investor seeks to own the bricks-and-mortar asset – towards debt-based real estate investing, where an investor provides capital to a developer or asset manager to achieve interest on that investment over a set period.
In light of the aforementioned changes in the BTL space – namely the greater cost and complexity – the ability to invest in real estate-backed opportunities without owning the asset will appeal to a particular demographic of investor, including those looking for more short- and medium-term investments, as well as those without the capital to invest in traditional BTL purchases.
Creating new opportunities
The simultaneous rise of alternative investments and technology to facilitate it has opened up a new world of real estate investment. One that is more open to retail investors and sophisticated investors, and one that fundamentally structures property investment differently from the previous models.
Ultimately, brick-and-mortar remains an attractive asset class to millions of people globally. And while the talk of a BTL exodus seems greatly exaggerated, it is a positive development for the real estate sector that investment opportunities continue to evolve and engage a wider pool of individuals.
* Jatin Ondhia is co-founder and CEO of Shojin, an FCA-regulated online real estate investment platform *
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