A new financial year has arrived, with many investors and businesses taking this opportunity to review their strategies and financial goals. While investors usually remain consistent in their habits, the economic challenges of 2020 will inevitably be a key consideration throughout the financial planning stages.
The global pandemic has impacted every inch of society and has shifted the priorities of investors. With an increasing emphasis on sustainability and reliability, key financial trends for the new business year include responsible long-term investment strategies as well as Buy-to-Let property.
While this investment asset comes with many considerations, property developer SevenCapital have detailed why your 2021 financial plan should include property:
A Positive Market
As we delve deeper into 2021, market forecasts are becoming increasingly more positive for UK property. Although experts once questioned the sustainability of the post-lockdown boom and anticipated a market drop, extensions to the Stamp Duty ‘holiday’ have sustained demand.
With the opportunity to save thousands on Stamp Duty Land Tax, the momentum from 2020 shows no sign of slowing down. In the weeks following the 2021 Budget, Rightmove recorded its busiest day to date. On March 24th, there were around 9.1 million visits to the site, equating to nearly 6,320 visits every minute. While this demand has the potential to outpace supply, new sellers entering the market have also reached record breaking highs.
This rising demand goes hand-in-hand with the economic rebound that is on the horizon. As the Coronavirus vaccinations roll out across the population, the economy will continue to benefit, with pre-Covid levels already in sight. Experts are forecasting a pre-Covid economy by mid-2022, characterised by subdued unemployment levels and balanced bank rates.
With the return to some degree of normality, the property market will continue to flourish. As employment rates rise, society will be more inclined to purchase property, with JLL anticipating 14.5% growth in prices by 2025, as well as an 8.5% increase in the rental market. As this steady demand continues, property investment will offer competitive rates of return, making it an invaluable asset for achieving your financial goals.
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The past performance of the property market highlights its reliability, providing more basis for investors to consider incorporating this asset into their financial plans. Although the market grew throughout the global pandemic, UK house prices have been climbing – bar momentary dips – for the past 10 years.
Pent-up demand and government incentives were a driving force behind the industry’s success during 2020, as well as social distancing guidelines causing an undersupply of property. Striking the perfect combination of supply and demand, the average UK property price reached a recording-breaking high, surpassing £300,000 for the first time in history.
The rental market also endured similar levels of growth, with emerging areas in the South-East, such as Bracknell, experiencing a 10.6% rise in rental costs – the first time the region has seen a double-digit increase. As a result, 62% of landlords in the South of England were able to achieve a higher rental income on their property.
This past performance, combined with the forecasts for the coming year, reinstates the potential of the property market as an investment asset. Whether your financial plan spans two years or twenty, property investment can provide returns on both a short- and long- term basis.
The Opportunity to Diversify
Incorporating property into a financial plan can not only help you work towards your financial goals but also reduce the overall risk of your investment portfolio. This is mainly because property investment is relatively easy to diversify – whether you’re opting for different locations or property types.
If your financial plan is based solely on property investment, having multiple properties, perhaps of varying types or location, can minimise the impact of market changes, fluctuating interest rates and evolving tenant demand. Specifically, investing in different locations will ensure that changes in tenant priorities are not make or break for your portfolio. As we have seen in the past 12 months, tenant demands can change rapidly, so investing in a mix of city centre locations and more suburban areas will ensure your portfolio is both diverse and less vulnerable to change.
Alternatively, balancing a portfolio can also be achieved by investing in different property types. While the most obvious choice for investors might be a combination of apartments and houses, Buy-to-Let off-plan property offers significantly more opportunities for faster financial gain. By investing, usually below market value before the property has completed, the surrounding area will, more often than not, undergo natural capital growth and boost the value of your property upon completion.
These strategies can either be used to diversify an investment portfolio on their own or help you maximise the resilience of your wider portfolio. With the ease of curating a diverse property portfolio, combined with the performance of the market, incorporating this investment asset into your 2021 financial plan will likely make your goals more achievable.
After the turbulence of 2020, the new financial year has emphasised a wealth of investment opportunities to consider. Despite the prominence of sustainable investing, property will remain prominent in the majority of financial plans. With rising prices and rental costs forecasted for the coming years, an investment in property will likely make both your short- and long-term goals more attainable.