Home Residential PropertyBuy-To-Let Why property bonds are trumping BTL as the best investment

Why property bonds are trumping BTL as the best investment

24th Jul 20 8:10 am

There is no question that the coronavirus pandemic has knocked the economy for six, with a 25% drop in GDP this quarter according to the Bank of England (BoE). However, the green leaves of recovery can already be seen, as the economy begins to show its first signs of post-coronavirus growth.

This confirmed by Chris Williamson, the Chief Business Economist at global information provider IHS Markit, who stated that recent PMI data indicates the economy is likely to return to growth in the third quarter; with measures such as the BoE cutting interest rates to a record 0.1% and the Government’s introduction of the Coronavirus business interruption loan scheme (CBILS), having turned around, what was initially perceived as, an extremely dire economic situation.

This same ‘bounce back’ can be seen in the current state of the property market, where the easing of lockdown rules has enabled it to reopen for business, benefitting buyers, sellers and investors alike. This is evidenced by property website Zoopla, which saw buyer demand rise by 88% in the weeks after the Government announced that it was kickstarting the housing market with a range of new social distancing measures in place; coupled with Sunak’s recent changes to stamp duty.

But, what does this mean for property investment?

There is more to property investment than BTL

In recent years, Buy-to-let (BTL) has become increasingly unattractive, with a range of tax changes bumping against lethargic price growth, followed by Brexit and now the COVID-19 pandemic.

During a downturn, investors look for opportunities that can continue to provide returns – but this is something the buy-to-let market has struggled to offer for many years.

In fact, you could argue that while Sunak’s Summer Statement has proved beneficial for home owners, it has thrown an unexpected spanner in the works for Landlords, by impacting the likelihood of a serious decline in property prices as homeowners take advantage of the new tax exemption over the next 8 months. As a result, stock will be limited, prices are unlikely to fall drastically, and landlords will still have to compete heavily for any quality property deals.

Consequently, more investors have turned to property bonds as an alternative means to secure attractive returns on their hard-earned capital; enabling savvy individuals to invest in the development of a property, without the hassle of owning it. Essentially, it is a loan to a property development company to partially fund a construction project.

As a ‘Lender’ not a Landlord, investors trade the hassle of managing tenants and day-to-day financial issues such as maintenance fees, insurance and tax for a fixed rate of return over a fixed period of time, confirmed through a legally binding agreement.

What’s more, with long lead times, ‘alternative’ property developments currently under construction aren’t likely to feel the current financial impact of COVID-19; where even those near completion can be strategically priced or refinanced for sale. As a result, investors can be safe in the knowledge that any current dip in the market won’t impact their agreed fixed rate of return for however many years down the line.

Property investment requires big picture thinking

The UK continues to be one of best investment destinations in the world and this is unlikely to change any time soon. As any investor knows, it is important to always keep in mind the “big picture” when investing, rather than focusing on individual events like the coronavirus pandemic or Brexit.

That being said you still have to make the right investment for you. While BTL was once a perfectly valid thing to do, the market has become a graveyard for amateur landlords, with property bonds paving the way as an attractive hassle-free alternative.

That being said make sure you do not settle on the first property bond opportunity that comes your way. Investigate who is offering it and what you will get in return for investing your hard-earned cash. Whilst property bonds offer very attractive benefits, not all property developers – and therefore not all bonds – are the same.

Ultimately, there is no doubt that the UK economy and property sector will be impacted by the current pandemic. However, the alternative market is built by savvy investors and developers, meaning the industry will bounce back quicker post-COVID-19 and will continue to offer attractive rates of return.

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