Property investment took a big hit when the housing crisis first got under way nearly seven years ago. Since then, foreign investors have been pouring money into England by way of London and other high-end areas in the South-East. However, things may be changing according to The Telegraph. It appears as though foreign investors are cooling on London and the South-East due to a stronger pound and an unfavourable tax environment. Perhaps that is one of the reasons property investment is enjoying a new resurgence among domestic investors.
Domestic investors have long said they are at a decided disadvantage due to the capital gains laws as they apply to foreign investors. The government answered those complaints this year by levelling the playing field between domestic and foreign property buyers. Those foreign buyers are now subject to the same taxation as investors who live here. Suddenly, the UK is not as attractive to them as it once was. Some experts expect foreign money to start dwindling in favour of more attractive environments like Singapore and Hong Kong.
This is good news for the UK investor trying to compete with foreign money. Having said that, London and the South-East are still not good locations for the average investor. Prices are just too high to make things viable. However, The Telegraph‘s Anna White says there are strong indicators suggesting prices will start falling in London in the near future. We will have to wait and see how that turns out.
Property is Stable
There are a number of reasons why property investment is making a comeback. First among them is the reality that property is stable. Over any historical thirty-year period, it is easy to see that property values have slowly risen right along with rental values and inflation. In many cases, both property and rental values have exceeded inflation. So even when there are bumps in the road, bumps like the last housing crisis, rental property still does very well. Those investors who did not panic seven years ago are realising good returns because they held on to their properties.
Of course, it is understood that property investment is a long-term strategy not able to provide incredibly high returns overnight. Nevertheless, when the right properties are purchased at the right prices, just a few years in the market could enable you to easily double your money.
One would expect institutional investors to start once again looking at property as the market rebounds. Yet remarkably, it’s the part-time investor who is really excited about property right now. These are investors who are looking to put investment funds into vehicles that will sustain them for the long term. They are investors who realise that traditional pensions and savings are not going to get it done.
Fuelling interest among part-time investors are recent changes announced with the 2014 budget from Chancellor George Osborne. One of the most profound changes is a new tool that allows individuals to draw down their pensions and, instead, invest that money in other things. Younger workers are discovering it is worth it to pay the reduced penalty in order to enjoy the returns property investment provides.
Part-time investors are also now beginning to realise there is little or no value in traditional savings accounts as long as interest rates remain so low. Any savings account yielding less than 2.1% is not even keeping pace with inflation right now. Therefore, an ISA offering just 1.5% is actually costing the investor over the long term. As people are understand this, they are choosing property as a more stable and profitable investment for their futures.
The recent surge in property investment has been interesting to watch. The combination of still-low interest rates, ample supply and less foreign money makes 2014 a great year to get into the market. We expect to see a very strong year after all of the numbers are tallied in early 2015.