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Is property a better bet than a pension?




By Lisa Walls-Hester on 2nd September 2016


Investing in property is a better bet than a pension, according to Andy Haldane, chief economist at the Bank of England.

Haldane courted controversy again this week by stating that investing in property is a better investment for retirement than paying into a pension. This comes only a few weeks after Haldane confessed to “not being able to make the remotest sense of pensions.”

The comments have angered some, Ros Altmann, a former pensions minister, reportedly said Haldane’s comments were “divorced from reality” and it was “irresponsible” to suggest people should rely on property rather than pensions.

Other commentators, particularly those in the property industry have backed up Haldane’s comments pointing out that investment returns from residential property, both income and capital growth, continue to beat all other mainstream investments, including commercial property, UK government bonds and cash.

A decade ago, the Barker Review of Housing Supply noted that about 250,000 homes needed to be built every year to prevent spiraling house prices and a shortage of affordable homes.

That target has been consistently missed, the closest the UK got was in 2006-07 when 219,000 homes were built.

 

 

Some believe that the lack of an adequate nationwide house building programme effectively keeps house prices relentlessly heading north. Furthermore, UK housebuilders have come under fire for limiting supply to keep their prices and margins high.

According to an Independent article in March this year a record half a million homes in England now have planning permission granted but have yet to be built.

For most people, the high cost of owning a property means the dream of owning an investment property portfolio is out of our reach. However, the alternative finance sector has got creative and muscled in to provide a range of property investment solutions that will fit anyone’s portfolio.

Property syndicates have always existed because property has historically been one of the best performing asset classes to invest in. Higher grades of investment were previously only on offer to institutions or high net worth investors but technology has brought them to the everyday investor and now anyone can own small bits of land and property without any of the hassles that come with ownership. 

The property crowdfunding space is still very new, there are regulated and credible players in the sector that provide a low entry point into the space. But we are seeing new platforms emerge on an almost weekly basis and Haldane’s comments are only likely to spur the gold rush.

There are platforms that provide investment opportunities for those who want to invest in residential property, commercial building such as retail, restaurants, and offices and even plots of land.

Marketplace lending platforms such as LendInvest, Landbay, and Saving Stream allow retail investors to invest alongside institutional investors in a loan or product that’s secured by a mortgage against a property. Firms offer pre-funded loans to borrowers to fund mortgages, and bridging and development loans.

Property Partner, Property Moose, and CapitalRise are players in the property equity crowdfunding space and The House Crowd offers both lending and equity opportunities to investors.

Intro Crowd enables you to buy shares in a limited company that owns land and plots without planning permission but has the potential to meet local authority approval. Intro Crowd then secures planning permission, before selling the land on.

The platforms differ with regards to how much capital needs to be invested. Yield and term lengths, fee structures and charges also differ considerably across the various platforms and investors who want to dip their toes in this sector should find a platform and investment model that suits their own investment goals and objectives.

Property investing is not without risk, the valuations given to property are largely subjective. An asset is only worth what someone will pay for it, right buyer, right time and many factors can change a property valuation in a heartbeat.

For every industry commentator that believes the UK’s supply shortage will keep prices permanently high, there is another one that believes we are due a price redress.

The OECD believes that UK house prices are overvalued to the extent that “short-term risks are emerging in the housing market”. AltFi’s David Stevenson is “cautious about becoming overly bearish on property lending” In an article earlier this year he said, “Many of the structural drivers of increased value haven’t changed in any substantive way outside of London.”

He is even more cautious about crowdfunded equity property and says: Here you’re fundamentally looking at a capital growth proposition, if only because running yields are so low in historic terms. I’m not convinced that we’ll see strong capital growth in the immediate future in which case investing in residential property might be a terrible waste of money in the short to medium term.”

The British obsession with property means the sector will always be a draw for investors.

Most Gen X’s and their parents will have at some point in their lives made money on their homes and investors tend to stick to what they know. We even give the adage of “safe as houses” to any investment perceived as being secure and certain.

 

 

As for my investment portfolio, I wouldn’t rule property out completely but I am in that small minority of people who hope for a downward price correction. Additionally, I don’t believe you can make a uniform assessment of the UK market, regional yield variation is considerable so for the time I would need to invest in research just to invest … I think there are easier opportunities out there.

 

Further reading:

What to consider when investing in real estate equity

Interview with Property Partner’s Daniel Gandesha

A game changer in the property crowdfunding space

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