By: Jatin Ondhia, Chief Executive Officer at Shojin Property Partners
Wealth creation through property ownership is becoming more of a challenge. Real estate investments have not been as mainstream as the likes of equities and fixed income products. Whilst a stock is constantly in a passive state of hold or sell, with real estate investment it is inherently different.
The property must be managed and monitored correctly to prevent any erosion of the asset’s value and any return on investment (ROI). Average rental yields are down (to 3.8% in December 2020 from a 5.9% high in 2012) and regulation is strangling financial gain, with perks such as tax relief for buy-to-let mortgages being consigned to the history books.
Whilst unfavourable changes to regulations have been a thorn in the side of those looking for wealth creation through property ownership, the COVID-19 pandemic has only accelerated the decision for many landlords to begin winding down part, or all of their property portfolios.
Add to this the woeful statistics from The National Residential Landlords Association (NRLA), which found that 60% of landlords had lost rental income as a result of the pandemic and it’s clear to see why so many are looking for the next answer for wealth creation through property investment.
Despite the challenges, it’s not all doom and gloom. In the annual survey by Lloyds, of City bosses, City firms are bullish about London’s future as a global finance hub. More than two-thirds of financial institutions believe that the burning of EU red tape will reassert London as a global centre for trade and finance as firms anticipate and adapt to the new regulatory environment.
The survey of major banks, asset and wealth management firms, suggests all are more confident about the country’s economic prospects than they were 12 months ago. It seems likely that UK property investment will benefit as a whole from a post-COVID, and arguably post-Brexit bounce, with the market poised for a significant digital disruption. Add to this the opportunity across global real estate and the digital pathway opens up immense opportunities.
Property, as one report highlights, is one of the last industries to fully embrace digitisation. More unglamorous aspects of landlord life, such as conveyancing, contracts and energy usage or carbon footprint of properties are now covered by startups offering online property services. There is an opportunity, via fractional investment, for people in normal professions – so not already high net worth individuals or those running family offices – can build a property investment portfolio online. There are deals out there, which are becoming more accessible, simple and affordable.
Creating a wider audience for wealth creation through the digital transformation of property investment is an exciting development. Institutional-grade real estate investment opportunities in the UK have previously been beyond anyone but the already very wealthy.
Mid-market property developers have traditionally found it hard to find junior funding partners. This void is now being addressed, thanks to the growing proptech sector. Fractional investment solutions enable individual investors to look beyond equity funds and physical property portfolios towards online alternative investments generating lucrative returns, together with the excitement of being involved with property development.
Furthermore, we will see the minimum investment threshold drop as these platforms expand. The rise of a new investor class will lead to more projects being financed in a virtuous ‘social capitalist’ circle that offers products to suit all risk profiles and where investors are able to build a diversified portfolio, allocating some funds across the investment spectrum.
Many more people will bid goodbye to the stress of getting the plumbers in every few weeks whilst keeping hold of their other jobs – and replace that existence with the pursuit of high return property development projects from the comfort of their laptops and smartphones.
The global online property investment market is forecast to grow from $15bn today to $800bn by 2027, driven by a generation of new, often younger, investors – many of whom may not be in a position to buy property outright themselves. Online portfolios show the potential to provide impressive returns and give some glamour back to property investment. So unthinking the tried and tested formulas will likely become the most attractive way ahead for real estate gains.