In these challenging times of zero returns on savings accounts and negative fund performance it is perhaps worthwhile looking at some simple comparisons on various investment markets. Here we choose to look at property – United Kingdom residential in particular as this has been a global investment market - and compare it to the Alternative Asset market
Let’s start with property.
UK Residential Property, and to a lesser extent commercial property, has been a favourite of international High Net worth and Family Office investors, but how do they compare in the current COVID-19 months?
It’s true to say many investors have ridden a wave on the back of the residential buy to let market over the past 20 years, but changes to legalisation, taxation and tougher controls from the FCA on mortgages in the past 5 years have made this a much less accessible and profitable ‘business’, with more constraints to come.
Cost to entry have increased with stamp duty doubling on investment and second home properties, whilst an unequal taxation protocol for those not holding properties in companies has seen major reductions in the net income returns non corporate investors receive.
Whilst possibly still better than the banks in the current market it is not enough to tempt too many new investors in with the barriers to entry quite high and exit ever more difficult. In reality now it takes about 3 – 4 years of normal house price inflation (2% used) to cover the basic entry costs of buying.
In fact, recent reports, National Landlords Association 18th and 19th February 2020, point to:
1. Investors leaving the market,
2. Rent yields reducing in real terms for landlords by as much as 30%. Net yields maybe even lower.
This coupled with the increasing legislation, government plans to remove section 21 protection for landlords, make it an increasingly illiquid market and thus definitely only for long term investments.
Commercial property is likely to fair even worse, particularly those on the high street, as we write this we are still in ‘lockdown’, with many business tenants needing rent reductions to keep their businesses’ afloat.
The Alternative Investment Market. Is it an active place for higher returns?
In comparison to property it has a number of benefits in the current market, firstly the point of liquidity means that money can be entered and taken out quickly minimising any downside risk in the event of either prices falls or a need for cash.
It is also a market where superior returns can be made regardless of the market condition - though one might argue it creates bigger risk if not controlled well, but this is where working with experts would typically be considered the best route.
Returns on this market can comfortably be double digit, after all most banks who have capital markets businesses don’t report high percentage annual profit levels on the back of the current accounts they provide! They achieve it from their internal alternative investment activities.
But what does it take, certainly a significant investment in time, focus and developing skills if the investor is to do this themselves? Perhaps better is to work with a specialist FCA regulated boutique alternative Asset Management Company where the skill, expertise and focus exists. Berkeley House Capital is one such company.
If you are a Wealth Manager, IFA, Family Office or Finance Professional and would like to know more about our investment products and/or services, send us and email to arrange a convenient time to discuss.
If you would like to discuss any aspect of this note please feel free to email: charlotte@berkeleyhousecapital.co.uk and one of the team will be very happy to arrange call with you.
www.berkeleyhousecapital.co.uk
12 Hay Hill, Mayfair,
London. W1J 8NR
United Kingdom
+44 (0) 207 863 7507
1. Berkeley House Capital is an Appointed Representative of Alternative Asset Management Ltd which is authorised and regulated by the Financial Conduct Authority (No. 450404). Not all of our activities are regulated by the FCA, further details are available from us on request.
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