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Property Investment and How the Investor Demographic has Evolved

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.

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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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    On what basis does the author state that "the talk of a BTL exodus seems greatly exaggerated"? If past experience is anything to go by, there will be a collapse of the private rental sector as landlords will no longer be prepared to let their properties when key ownership rights are removed by new legislation; to have to sell your property to get it back is not consistent at all with freehold ownership. Furthermore, the activisits want to go further forcing landlords to have to pay tenants two months rent as well - look out for posts on this site promoting that. How much more money will tenants want to leave - a share of the capital gain? Or will they want to buy the property at a greatly reduced rate? Who in their right mind would invest in property in those circumstances with all the licensing schemes, threats of criminal convictions, and huge tax bills. My rental return in London is less than the interest I could obtain from National Savings and Investments.

    Attention will turn soon to stopping the landlord exodus and its consequences. Look out for attempts to say that Section 21 notices can be ignored by tenants, landlords should sell their properties with tenants in them, possible rises in capital gains tax (or its graduation so that we are heavily penalised for selling now), suspension of bailiff operations etc.

    Richard LeFrak

    Good Morning Ellie, completely agree and the exodus is not exaggerated. Only have to see this forum to see the direction of travel…

     
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    Your circumstances are enough to stop anyone investing in the private rental sector, Peter. I just hope that some justice ultimately prevails in your case.

     
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    As for the capital growth in property mentioned in the above article, with sitting tenants the capital value will plummet.

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    Tax & Finance.
    Well done Jatin, Property Investment and Demographics has Evolved to Zero, has taken Centuries to achieve this point what load of dung and the Article is full of it.

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    Only big investments are by those engaged in build to rent - people hoping that this will plug the gap when we have been driven out.

     
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    Bricks & Mortar remains attractive to millions of Investors globally he says.
    Where do you find Bricks & Mortar now we are back to Insulation and Tin Cladding
    again in West London look around you.
    The Grenfell affect is wearing off quite quickly at least we got the 48 acres South Acton Estate replace with wonderful Brick Building’s that would otherwise never have happened.
    It now has to be quick & simple to put up for maximum profit and a quick take over of the letting Business by the Bog Boys, Institution’s, Insurance Companies, Pension Funds, Lloyds Bank Group / Halifax Bank of Scotland, Barclay’Bank, John Lewis etc, all lined up.
    When were any
    of them ever involved in Residential Letting’s before ?.
    So as well as bulk buying Blocks of Flats from Developer’s that has already started, one of 600 in one sweep (your first time buyers that you keep on about won’t be buying any of those).
    Now they have huge numbers of Banks Branches closing down ripe for Development and change of use to Residential mostly Letting’s.
    Any pennies dropping yet about what’s going on if not you wouldn’t be much use at cludo.
    We are being deliberately and systematically driven out and replaced.

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    They want to time our exits though - so we don't all sell at once. If we all went now there would be a real problem - not enough housing available yet from the big organisations.

     
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    Apart from the timing, there is also the big problem that the new developers are charging much higher rents that we do - and they put them up regularly as well.

    The small private landlord may well do much of the property maintenance his or herself (unpaid work), consequently charge much lower rents, and not raise rents for existing tenants. Also may well provide much quicker and more efficient service.

    Our mistreatment and replacement is not benefiting tenants.

    And our replacement will not benefit HMRC either - we pay more tax because we do much of the property maintenance and management work ourselves - and that work is not tax deductable.

     
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    Yes we are on a drip until they catch up Covid got in the way and slowed their plans but catching up quickly with different favourable conditions and laws for them as I understand it no need for HMO License if more than 3 in the Block, no Section 24 and Company tax rate about half what we pay that should help them ? to make us un-competitive.
    Lloyds Bank uk biggest Bank and also the biggest Mortgage’s provider, conflict of interest with its Customers and now can control how much they borrow in direct competition with themselves.

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    It is all very unfair and tenants are not benefiting. I had a tenant leave to stay with his girlfriend in a new development - now regretting going tremendously because of a massive rent rise. My rent is still the same as six years ago - no rent rises for my tenants.

    Several former tenants have asked if I can house them.

     
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    Statistics can be twisted to support whatever point someone wants to make.

    The percentage of landlords selling has no bearing on the percentage of change in the number of rental properties.

    70% of landlords only own one or two properties. Mainly as a top up to another source of income. They don't own 70% of rental properties.
    Several of us who read this forum own 10+ and we seem to be mainly sticking with it. Whether that's because it's our primary income or because of the horrific CGT bill we would face if we sold or because we are life long landlords and still enjoy it will vary from person to person. We are also the group who are most likely to house people who don't qualify for Social Housing and don't fit affordability criteria for the big corporate landlords. If large numbers of us go there really will be unprecedented problems.
    The government need to quickly come up with some policies that incentivise the small and mid range landlords. Especially getting new landlords into the industry. With CGT at 28% why would anyone become a long term landlord? There are better returns and far less hassle simply putting money in a savings account right now. Why would a youngish person have any truck with pouring all their savings into a deposit for a BTL, then pay tax on money they don't have, lose their Child Benefit and then have the government effectively steal a couple of bedrooms worth in CGT when they decide to sell? That's assuming it all goes well and they don't have a rogue tenant.

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    I agree Jo with 10+ we can spread the risk, I have a good selection of tenants at present and enjoy what I do, the golden rule as I see it is very careful selection of tenants going forward

     
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    I would take issue with a few of the points which Jo has made.

    Firstly, what evidence is there to show that the percentage of landlords selling has no relationship to the number of rental properties? Surely if the private rental sector is no longer seen as attractive by many private landlords then there would be less investors who would wish to enter the market or expand their portfolios. The loss of ownership rights associated with the impending legislation is likely to cause the demise of the private rental sector over the next few years.

    Secondly, what proper evidence is there to show that landlords who own more than ten properties are "sticking with it"? There are reports that landlords who own a large number of properties are the group most likely to be selling up right now. One reason for that is mortgage deficit.

    Thirdly what evidence is there that landlords who own only one or two properties have another source of income? We know that many landlords are late middle aged or elderly and that may suggest that rental income is their primary income.

     
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    Ellie - The actual published statistics for May 2022 are:
    43% of landlords owned one rental property, representing 20% of tenancies. A further 39% owned between two and four rental properties, representing 31% of tenancies. The remaining 18% of landlords owned five or more properties, representing almost half (48%) of tenancies.

    In most parts of the country the profit from one rental property would most certainly not be a primary income. Even if the property was unencumbered a state pension or minimum wage job would be the higher income.

    Maybe a large HMO in London could be a primary income but an average family BTL wouldn't be.

    New or expanding landlords are increasing looking at incorporation, which completely changes the financial picture.

     
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    Jo - the breakdown of ownership according to number of properties owned, doesn't tell us anything about who is selling and who is buying what is bought.

    I have heard the activists say that it doesn't matter if existing landlords sell up because of the Renters Reform legislation because those properties will simply be bought by other landlords. I think that is wishful thinking on their part. That is certainly not what happened in the past under the Rent Acts and the assured tenancy rental regime which preceded the introduction of shorthold assured tenancies. The only landlords who continued to operate were those who let outside the legislation using a different business model altogether - the chance of an ordinary person renting a flat was almost nil during those times.

    What evidence is there that the majority of landlords with large portfolios will carry on letting when their ownership rights are partially destroyed?

    In the past the financial picture did not determine whether people continued to let; the only consideration was loss of control/full ownership of the property.

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    Apart from this we have the Court / Tenants scam in Camden where the landlord was issued a Rent re-payment Ordered to 3 Tenants of £28’000. over not having the Property Licensed, reduced on Appeal as I understand it by £8’000. because the Property was fit for purpose.
    So its not the condition of the property just because Camden Council didn’t get their cut it like gangland pay the Boss man or you can’t operate.
    The 3 bed Flat was fit for purpose or the Tribunal wouldn’t have taken off 30%/£8’000, nothing to do with improving the condition of the Property for the Tenants as their conclusion statement suggests, proves otherwise by the Court itself by the £8k reduction.
    It says he didn’t have an Additional license it was my understanding that it would apply to 4 Tenants to have an Additional silly me.
    Selective licensing was supposed to be for 3 people but if 2 were a couple / 2 households no license required, so it’s changing all the time making it up as they go along for sure.
    It looks like a modern block but the Rent was extremely high in my view as I have 5 bed licensed HMO’s Houses rented for similar rents. I suppose it what Council meddling does.
    The whole thing is a big mad rush to drive out or Bankrupt Private Landlords for the Big Corporate Boys to take over as their own Businesses have been destroyed by Internet whether it be Banks closing down Branches or Department Stores hitting the rocks.
    The Government is throwing them a life line / ours.

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    You do very well, Michael, to highlight the size of the fines being imposed on landlords who are letting properties which do not have any faults. That is extraordinarily unfair. You have made a very important point.

    As you say, we, as small landlords, offer a much better and cheaper deal to our tenants. And furthermore, the modern blocks often have very small rooms.

     
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    The other point missed here is we are all equal before the law.
    Why weren’t the Tenants prosecuted and fined £20’000, for Renting an Unlicensed Property.

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    Agreed - unfair Michael.

    On a slightly different, but perhaps related point, it seems that tenants can only be fined if they sub-let SOCIAL housing. A tenant cannot be guilty of an offence of unlawful subletting if they have a private landlord.

     
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    @jo westlake - Hi Jo - can you tell me where the figures re ownership % were published - not doubting u - just interested in any source of info - thnx

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    Hi Catherine
    It was from the government English Private Landlord Survey 2021.

    I Googled 'Average number of properties per landlord UK'.
    There's loads of statistics from various sites. I can't put proper links on here but Statista has some good stuff and Property Tribes landlord statistics article is interesting as it has both mean and median figures.

    Most statistics are a year or two out of date but some have comparisons with earlier periods.

     
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    Its extraordinary that they are making laws to encourage Tenants to break the Law.
    The Tenant would need to be stupid to Rent from a legal Landlord.

    When he can rent from a non-Compliant Landlord , encouraged and rewarded for doing so by getting all his Rent back, lived for free, how daft is that.

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    It seems to me that private landlords as a group are not deemed worthy of legal rights and protection. However bad something is that is done to us it is not viewed as criminal.

     
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