Why build to rent is the sensible option in the face of Stamp Duty hike
Landlords are turning away from the rental market as prices rise, but build to rent could be the future of the market.
At the start of this year, it was believed that the build to rent market was the single biggest sector in the future of British property. A shining light, build to rent was going to see investment flood into the rental sector nationwide thanks to the fact it side stepped the Stamp Duty levy, making it cheaper for investors, and offered tenants exactly what they wanted and needed for a rental home.
Millions of pounds were committed to the sector by a number of large companies, and things looked good, until the chancellor announced that build to rent would not be exempt from the tax changes after all. But is this really a hindrance to it, or does build to rent have the inherent strength to overcome this setback? We take a look at the positives that make it still the perfect option for investors looking to get themselves onto the property ladder.
Below market value prices
The main reason that many investors in buy-to-let property are turning their back on the market is that it is simply becoming more expensive in the aftermath of the Stamp Duty levy placed on purchases as of the start of this month (April). This has added three per cent to the cost of purchasing a rental home. But is this where build to rent can really shine?
The build to rent sector was dealt a blow in late March, when the chancellor revealed that it would not be, as had been expected, exempt from the three per cent levy. However, that's not all build to rent had up its sleeve, and it still has more to offer investors in its below market value pricing.
It's fair to say that the main reason many people are not thinking investing in rental property is the price and the fact this has gone up thanks to the levy. But buying off plan in build to rent developments with companies like Experience Invest means getting properties cheaper than they would be on the open market, a perk that could just wipe out the price of that levy and make it very much worthwhile to invest.
Guaranteed returns
Any property investment is a risk, and at a time when the chancellor has increased the cost of getting onto the rental ladder from an owners' point of view, chances are that this risk looks even more unwelcome than ever before.
But it doesn't need to be that way. With investments in many build to rent developments, such as The Georgian Quarter in Liverpool and The Residence in Manchester, investors can get themselves a guaranteed return of seven per cent for three years, which takes away the element of risk that might be acting as a little voice telling them not to invest in the market.
Long-term sustainability
Build to rent properties may seem like they come with a risk – and they do to some extent – but if the current state of the rental market is anything to go by, there is a potential for long-term stability in the sector.
The main driver of growth in the market at the moment has been generation rent; those who rent because they want to and not because they have to. And this is showing no sign of stopping any time soon. The government said that the proportion of people who own their own home continues to fall. It peaked in the 1990s at almost three-quarters, before falling to 69.5 per cent in 2002. By last year, this had dropped even further to 62.5 per cent, showing that people are increasingly comfortable renting, even as the economy improves.
Build to rent sits perfectly when it comes to this rise in generation rent. Young people who choose to rent want to get their hands on homes that are located well in terms of transport and lifestyle, as well as being purpose built for their needs. The build to rent sector serves this better than any other area of the property market, and as such is set up well for long-term success.
This article was provided by Experience Invest.
