This is one of the key questions that prospective investors often ask us. So the Property and Investments Teams here at British Pearl sat down to discuss and share their thoughts.
We believe that due to the large transactional costs incurred in property investment (such as legal fees and stamp duty) a longer term view has to be taken. There is also no rapid entry and exit and therefore property is an asset class that cannot be easily 'traded'.
As a result, British Pearl is very much focused on ensuring longer term capital preservation with growth where possible plus identifying strong rental demand. Of course, there are always risks of a general set-back in headline national property price levels, but we truly believe that this does not mean that opportunities are not always available.
Since the global financial crisis shook the markets in 2008, there has been a fundamental shift in the financial world. Many central banks, including the Bank of England, pushed their interest rates lower in order to stimulate their economies.
This created an environment where interest rates payable on cash became extremely low or non-existent. Many investors are therefore looking at alternative ways to generate long-term capital growth or to boost the regular income that is needed to cover day-to-day living expenses.
Property is one of these alternative investments. It also happens to be an investment that people in this country understand and have historically trusted. The key factors influencing property prices currently are:
Supply and demand: the overall size of the housing stock is still expanding very modestly (latest data suggests 217,0001 per year). With overall demand growing at 240,000 to 340,0002, this supply shortage continues to support prices.
Economics: Economic uncertainty continues as Brexit outcomes remain unclear. Weakness is likely to be seen, and as a result would normally weigh on the property market. This is likely to slow down transaction levels in the near term. This will continue to impact more speculative markets (such as new-build flats in central London) rather than other markets.
Interest rates: While the uncertainty of Brexit remains, there is little chance of any significant upward shift in interest rates. Longer term, with an uncertain economic outlook, interest rates are likely to remain relatively low compared to historical norms.
Taxation: Government policy has been to reduce the attractiveness of second properties from a taxation perspective, which has clearly had an impact on buy-to-let landlords. This means there are opportunities for experts to identify attractive options and operate more efficient property management.
Mortgage affordability: As a result of the 2008 credit crisis, the Prudential Regulatory Authority now requires mortgage lenders to conduct more stringent affordability checks on borrowers for personal and buy-to-let mortgages, this has lead to a reduction in the number of mortgages available.
With the current economic backdrop and the impending uncertainty of Brexit, we understand investor concerns around the risks being faced by asset prices generally and specifically property prices.
We believe that times of risk are some of the most interesting times to be able to identify opportunities since many investors are looking at alternative assets purely as a result of those headline risks. Furthermore, in order to build in as much capital protection as possible we work hard on the following three areas:
In short, there are always new market opportunities and we believe that when there are headline risks that are driving headlines nationally and weighing on the confidence of investors then it's a really interesting time to be scouring the marketplace to identify interesting investment opportunities.