Buy-to-let tax changes pushing landlords to alternative real estate investments
- New UK buy-to-let tax changes come into effect from 6th April 2017
- 44% considering alternative real estate sectors in 2017 (PwC)
- Student housing, leisure and healthcare sectors emerge victorious (PwC)
It’s fair to say that the UK’s buy-to-let property market has suffered quite a few blows at the hands of government in recent years.
The additional 3% Stamp Duty from April 2016 meant that buy-to-let produced lower yields literally overnight and the scaling back of mortgage interest tax relief from 6th April 2017 is also expected to have an impact. Then there’s the whole Brexit issue, which has created a lingering aura of caution and uncertainty when it comes to the property market (though the market has held up well thus far).
“The UK buy-to-let market has displayed an impressive level of resilience in the face of these blows. Investors haven’t lost their despite the tax changes and impact of the Brexit referendum. What has been particularly interesting, though, is the scope that the situation has provided for other asset classes to flourish – care home opportunities and even exciting new adventure resorts are all tempting investors looking for strong returns, which many buy-to-let properties can no longer match.”
Jean Liggett, CEO of visionary property investment consultancy Properties of the World
PwC’s Emerging Trends in Real Estate Europe 2017 report confirms this. According to the report, 44% of those surveyed are considering alternative real estate sectors in 2017, with ‘alternatives’ boasting the best prospects as the year unfolds.
Healthcare and leisure are cited as two of those alternatives, as is student housing. In fact, “student housing, retirement/assisted living and healthcare” are listed as the three best 2017 real estate investment prospects.
Care homes are an interesting example. At Gramont House in Bingley, investors can enjoy 8% NET returns for 25 years as part of an investment model that has been developed as an ethical, sustainable way to meet the needs of the UK’s ageing population. Investors’ purchases make a difference to the standard of accommodation that can be offered to those in care, as part of a fully hands-off model. Investment is from £75,000, without so much as a hint of Stamp Duty to worry about.
Meanwhile, adventurous investors are turning to new tourism resorts to satisfy their need for healthy returns, as well as to enjoy the lifestyle benefits that such investments offer. The UK tourism sector is booming. The Q4 2016 Hotel Bulletin from AlixPartners projected that 20,000 new hotel bedrooms will open in the UK over the course of 2017. Meanwhile the Hotel Investment Outlook 2017 report from JLL confirms that Europe is expected to continue to show growth in 2017, despite economic uncertainties.
“The tourism industry has shown resilience and travel remains on the increase. The movement of international travellers is expected to grow 4% annually over the next 10 years, resulting in a lot of heads in beds.”
The long-term prospects of leisure sector investments have caught the attention of many investors who, before the tax changes, might otherwise have put their money into buy-to-let without a second thought.
Figures from the Office for National Statistics show that overseas residents made 9.2 million visits to the UK over the course of the three months to December 2016, an increase of 6% compared with the same period in 2015. North America and Europe drove the growth, increasing their visitor numbers by 15% and 8% respectively.
Developments such as the extensive Afan Valley Adventure Resort are benefitting from both the booming visitor numbers and the shift in investor attention. Land plots (£25,000) and lodges (from £149,000) are offering promising returns, while the lodges come with the lifestyle benefit of two weeks’ usage per year.
Student housing is perhaps the most established rival to buy-to-let in the UK when it comes to grabbing real estate investors’ attention. The model is proven to the point that PwC’s Emerging Trends in Real Estate Europe 2017 report noted that it had spread from the UK and Germany to Iberia, Central and Eastern European countries and the Nordics. 61% of those contributing to the report cited student housing as their preferred alternative investment for 2017.
Modern, stylish student accommodation schemes such as X1 – The Campus in Salford, Manchester show why the model has become so popular. Investors enjoy yields of circa 6-7% NET, students experience a standard of living that would have been unimaginable just a few years ago, and overcrowded university cities breathe a sigh of relief at the swift resolution of their accommodation struggles.
“The UK remains a safe, stable investment prospect, but investors who are seeking maximum returns from real estate in 2017 are increasingly being drawn to alternatives for their stronger yields. Expect this trend to continue for several years as mortgage interest tax relief continues to be phased out.”
Jean Liggett, CEO, Properties of the World
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