Changes to tax and new regulations surrounding buy-to-let have caused property to fall out of favour amongst investors.
Changes to tax and new regulations surrounding buy-to-let have caused property to fall out of favour amongst investors.
A survey of UK investors and high net worth (HNW) individuals revealed just under a third considered property as one of their main investments.
While 25% of those questioned in the study commissioned by Rathbones Investment Management currently owned their own buy-to-let properties, only 7% had plans to increase their portfolio.
According to Rathbones the changes to the tax treatment of buy-to-let investments as well as new regulations introduced by the Prudential Regulation Authority (PRA) affecting portfolio landlords have prompted many landlords to ‘re-evaluate’ the cost effectiveness of property as an investment.
Rathbones’ findings echo research by the National Landlords Association which reported 20% of members planned to sell a property in their portfolio in 2018.
However, it is not just the regulatory and tax changes which are putting investors off property. Rathbones said with house price growth continuing across the majority of UK regions, affordability was of great concern.
Meanwhile low interest rates and limited wage growth was also putting many off from accessing or climbing the property ladder.
Robert Szechenyi, investment director at Rathbones, said: “Whilst it’s understandable that property, and in particular residential property, has been a popular investment in the past, it’s now making less and less sense.
“Not only are the returns now being impacted by an increased rate of tax, but they can also prove high risk investments due to a lack of diversification.
“Property investments require a large amount of capital to be held in one single asset and landlords will often hold a number of properties within one region.”
Traditionally, property has been popular because of the high returns it can generate and the fact people found the asset class more familiar than stocks and shares. Indeed, Rathbones highlighted research by the Office for National Statistics (ONS) which said investing in property instead of a pension was the best way to save for retirement.
According to the research 25% of the HNW investors surveyed had gained wealth through property, 17% invested in real estate and others in commercial real estate and land.
Szechenyi added: “Investors who are looking to invest in property should make sure they assess their risk appetite, look at all alternative options and make sure this property is held within a well-diversified portfolio of investments.”
