The UK’s commercial property market could become more appealing to a new breed of investor says commercial property agent Prop-Search, following Chancellor George Osborn’s announcement last year that buy-to-let and second home owners will be subject to a big tax hike – as well as significant flexibility to the pensions system.
In his Autumn Statement, the Chancellor delivered a significant blow to residential investors saying that ‘people buying a home to let should not be squeezing our families who can’t afford a home to buy’ and introduced a three per cent increase in stamp duty. Whilst perhaps three per cent does not sound like much, it in fact trebles the stamp duty bill on a £275,000 buy-to-let from £3,750 to £12,000.
Changes to the pension scheme – which came into effect in April 2015 – saw savers having the opportunity to withdraw large lump sums from their pensions to reinvest as they see fit, potentially in higher yielding assets such as property. Whilst many may have automatically looked to the residential market for the traditional buy-to-let opportunities, the commercial property market could now hold significantly more appeal.”
Simon Toseland, a Director at Prop-Search, said: “At the beginning of last year, it was reported that over £59bn was invested in commercial property and indeed 2015 ended strong on investment thanks to the highest rental value growth since 2008. In a recent report commissioned by the British Property Federation, it was also revealed that over seven million UK citizens have a retirement fund directly linked to the commercial real estate sector, as it offers stable, long term income and flexibility.”
When investing in commercial property, there are many factors that need considering before individual investors take that leap. Typically there are longer tenancies available that can range from two to 15 years, compared to a typical residential property that is let on an assured short-hold tenancy, often as brief as six months. The risk of void periods do occur and it can take longer to fill them in the commercial sector, because lease transactions are more complex. However, on the plus side, commercial property can be seen as providing a more stable income as rents are often subject to upward only reviews. And tenants, which are more likely to be companies rather than individuals, are also seen as less likely to default on rent payments and generally are fully responsible for keeping premises in a good state of repair and condition.
Simon Toseland concludes: “2016 continues to be a year of significant changes and big decisions in the buy-to let-market, and with that, the commercial property sector could become a much more enticing place for investors as they look for alternative returns on their funds.”
