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Insight & Opinion

Asset Class League: Comparing the best asset classes for investors in the UK

Author: Staff





What are the best asset classes for those looking to invest their money in the UK markets?

UK buy-to-let sector is considered as one of the best asset classes however, over the last couple of years, the government has seemingly gone a long way to make investment in the residential rental sector more challenging to say the least. More than any time in recent years, the government has been throwing barriers in front of investors in the shape of taxation alterations.

It all started last year, when the government decided to bring in a new level of Stamp Duty tax for those spending money on rental sector homes. It said that anyone who bought a second home would have to spend three per cent on top of the cost of the home in order to secure another property.

And in April this year, the government is going to go one step further again, bringing in new laws that will see landlords not being able to deduct mortgage interest from their taxable income, increasing the cost of buying rental homes nationwide.

What are the best asset classes for 2017?

As a result, many rental sector investors have been reassessing their choices, and looking at the options available when it comes to spending their money.

Experience Invest provides an investment outlook on various UK assets, and ask, what are the best asset classes for 2017 and what is the best asset to own in a crisis?

Best asset classes residential

Residential buy-to-let

Residential buy-to-let is one of the most common asset classes, offering buyers a tangible investment. It has also been preferred for its often high yields, compared to low savings rates and stock market instability.

However, the new tax changes are likely to see potential investors think twice about investing in residential properties.

Due to the UK’s major undersupply of buy-to-let housing and the country’s buoyant rental market, the BTL market is one of the best performing asset classes over time.

Average price of investment: The average asking price for a house in the UK stood at £317,281 in May 2017 according to Rightmove.

Average annual return: According to Countrywide, the average monthly rental price in the UK is £921, resulting in an average annual return of £11,052.

Stamp Duty cost: Most buy-to-let investments come with a Stamp Duty cost of three per cent on anything between £40,000 and £125,000. On those between £125,000 and £250,000, you will have to pay five per cent. You’ll be paying eight per cent on a property between £250,000 and £925,000 and 13 per cent on anything between £925,000 and £1.5 million. Anything above £1.5 million will cost 15 per cent in Stamp Duty.

Best asset classes UK

Off plan residential buy-to-let

Off plan residential buy-to-let offers benefits. These properties are sold before they are actually built, which can lead to developers offering huge discounts. While the development is being built, property prices will rise in the surrounding area, allowing investors to capitalise. Off plan property – and the UK’s thriving Build to Rent sector – is widely considered one of the best asset classes to buy.

However, it can be difficult for buyers to obtain mortgages for these properties, with lenders uncertain of the outcome of the development. They are therefore particularly attractive to cash buyers.

Average price of investment: The average price of an off plan residential buy-to-let property varies depending on property type and region.

Average annual return: Investors who purchase an off plan through Experience Invest can secure an assured rental return between 6% to 8% depending on the location and property type/ size.

Stamp Duty cost: As with residential buy-to-let investments, investors will pay varying amounts of Stamp Duty on off plan property.

Best asset classes - students

Student property

Student property is generally considered a safe investment option as it will always be in demand. Despite the threat of financial recession, there will always be students attending universities across the UK.

Knight Frank recently revealed that investors in purpose-built student accommodation are seeing better yields than they ever have, with the number of students living in these properties having doubled in the last decade. There are also more students than ever at university, with UCAS revealing on last year’s A-level results that 424,000 had been accepted into higher education.

Since 2011, student property has risen in popularity and, due to the strength of this market, is considered one of the best asset classes for 2017.

Average price of investment: The price of purpose-built student accommodation does vary based on location. Investors should look for high quality developments which are close to an established university. Good transport links and city/town centre locations also provide good returns. Investors can pay from £68,000 per student room.

Average annual return: Depending on the location, students pay an average of £143 per week in rent and stay in their accommodation for an average of 44 weeks, leading to an annual income of £6,292

Stamp Duty cost: A zero per cent Stamp Duty tax is applicable to purpose-built student rooms however, HMO are the same as other residential buy-to-let properties.

UK asset classes

Commercial property

Commercial property can include retail units, offices and restaurants, giving prospective buyers a wide choice. In January, the Telegraph reported that the number of buy-to-let investors who chose to focus on commercial property instead has tripled in the past three years.

A number of analysts think that Brexit will cause continued uncertainty in the commercial property market, which means that buyers should think carefully about whether this is the right time to invest however, this asset class is considered very valuable in a time of crisis by those who wish to diversify their property portfolio.

Average price of investment: The price of a commercial property depends entirely on the region you’re looking to invest in, with London seeing the highest costs.

Average annual return: Commercial property in London can cost an average of £52.50 per square foot per month, which can offer huge yields. It varies according to location, though, and Brighton will cost £3.38 per square foot per month in rent.

Stamp Duty cost: Zero per cent on anything up to £150,000, two per cent on the next £100,000 (between £150,001 to £250,000) and five per cent on the remaining amount (above £250,000). Read more…

Best asset class 2017

Hotel/Apart Hotel investments

The idea of investing in hotel or apart hotel rooms is a relatively new one. It can be an attractive option, with the owner often benefitting from a certain number of free nights in the hotel. It can also appeal to investors looking for a different asset to buy than residential buy-to-let investments in city centres that attract a great deal of tourism.

Hotels in London saw more than 80 per cent occupancy during 2016, which positions it as a relatively secure asset class. However, there is not a well-established resale market, which could make investing in it potentially risky.

Average price of investment: How much you’ll be expected to pay for a hotel or apart hotel unit will vary on the region you’re purchasing it in. With it being such a niche market, there are few average price statistics around so it’s important to do your research. It’s early days but hotels and apart hotels may emerge as one of the best asset classes.

Average annual return: Some developers promise returns of up to ten per cent so it’s, again, vital to do your research and find the highest yields.

Stamp Duty cost: As they are classified commercial properties, hotel rooms up to £150,000 are exempt of Stamp Duty.

best UK asset classes

Care home investments

Investors wanting to diversify their portfolios are increasingly looking towards care home units as they offer real opportunities for capital growth and high returns. With an ageing population that will require more care homes, now might be a good time to consider investing.

These investments are offered on long-term leases so they do offer security, but if you’re looking for something permanent, you might prefer a buy-to-let property than a unit within one of the best asset classes.

Average price of investment: Prices of these units differ but many will cost between £70,000 and £85,000 so investors should survey their options before buying.

Average annual return: Some developers promise investors yields of up to 12 per cent so explore what returns are really being offered before going ahead with a care home investment.

Stamp Duty cost: As with hotel rooms, care home investments are considered commercial property so are exempt from higher rate Stamp Duty.

The best of the best…

For those looking for the best asset classes in 2017, Experience Invest recommends student property and off plan buy-to-let developments.

As off plan property is often available with a discount, investors looking for capital gains may achieve better results as they will benefit from any price increases throughout construction. What’s more, upon completion, new build properties are very desirable with the rental and first-time buyer market.

Student property has proven to be resilient in times of economic uncertainty. The number of students studying in the UK remains strong and the demand for beds in key university towns and cities outstrips supply. With en-suite and self-contained studios priced much lower than other assets and 0% Stamp Duty rate to pay, student property has become one of the top performing UK asset classes.

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