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September 1, 2022

What are the investment risks in the UK residential property market?

For quite a long time, investing in walls was considered one of the best ways to protect your savings against inflation and generate passive income regardless of the circumstances. However, after 2016, the British real estate market declined somewhat compared to other European countries. Many investors chose a “wait and see” strategy, while the pandemic dealt another blow to the economy.

 

The market movement was noticeable at the end of 2020, when prices for residential real estate reached a record level. The reason was the high population density of Britain and the prevalence of demand over supply. In unstable times, people want to feel secure under their own roof over their heads. Could this mean that the real estate market will show steady upward growth in the coming decade?

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There is no absolute guarantee, but experts claim that the English market will retain its investment attractiveness. However, the following risks should not be dismissed:

 

  • Legal and regulatory changes in legislation

The real estate market has already experienced several legal changes in the last 5 years: minimum energy efficiency standards and updated requirements for buildings, reduction of tax benefits, establishment of new fees for tenants when concluding a lease agreement. Any changes that affect the social standard of living are directly reflected in the real estate market indicators. But it is a factor that is quite difficult to predict, although it is real, if you are scrupulous about studying all the related processes.

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  • Real estate price fluctuations

Director and Co-Founder of the Pure Group Ben Lloyd claims that this quite obvious risk can lead to significant financial losses. It is not only about the walls themselves, but also about building materials. Given the unstable trends of the world economy, the cost of restoring the building may turn out to be more expensive than predicted. In addition, you should also pay attention to the location, because certain objects, even with the most expensive repairs, will not receive more than the projected value just because of the district.

 

  • Failure to find a buyer or tenant
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You can have the best premises with the best conditions, but you cannot predict the ability to pay and customer behavior. There is a very real risk that you will not be able to rent out or sell the property at the price you expected. And empty real estate will mean for you a significant loss.

 

Recommendations of investors

 

  • Residential real estate is quite an attractive option for investment, but there are a few life hacks to protect yourself from risks:

Entrepreneur and investor Dmitry Leus pays attention to the strategy of crowdfunding investments. This approach involves uniting several private entrepreneurs to finance the construction of small apartment buildings. It allows you to diversify your savings for various other projects.

  • Peer 2 Peer (P2P) lending—real estate expert Luca Peterson draws attention to this investment model because it does not require significant financial investments. This is a kind of loan that developers take from you, bypassing the bank, and you will receive dividends according to the terms of your agreement.
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