Is Property the new pension? What role overseas property?

December 3, 2013

Are you fed up with your pension and the returns it is delivering? Is inflation eating away at your investments? Do you want to achieve a balanced investment portfolio and not put too many eggs in one basket?

More people are talking about, and turning to, property because their pension, or other investments haven’t delivered, particularly with current inflation rates and low interest earnings on savings and investments.

So why is property a decent alternative investment choice?

Property investment decisionIn buy-to-let property, there is the triple, positive, whammy-effect. You get income, which, taken as a proportion of the sum paid for the property, on an annual basis, equates to yield.

In addition there is the capital growth, where property prices, in the long run, rise. Yes there are cyclical patterns and prices have fallen in some parts of the world, but if you are taking the long term view, it tends to be upwards.

Plus there is the leverage, the ability to borrow money against the asset of the property, which means several things. Not all of your money is tied up in one property, which means it can be doing other things like being invested in more properties, or other investments and this can reduce risk, if this is desirable.

In addition it means that whatever capital upside there is, you will gain on the price of the property, not just the deposit you have made. So taking a £200,000 property with a 5% or £10,000 deposit, a 7% uplift in the property price will be a £14,000 gain rather than a 7% uplift in the deposit of £5,000, which would equate to £350, the equivalent of an exceptional savings return on “your” money. In a savings account, you don’t earn this on someone else’s money i.e. the lender’s, although vehicles like investment trusts can use leverage.

Reduced interest rates have effectively reduced the returns savers can get on deposit savings accounts. In addition, many pension funds rely on government debt, (which is backed by gilts) and the act of pumping more money into the economy lowers gilt yields, reducing pension pot returns and income for pensioners, taken in the form of annuities. It is estimated that retirees with annuities are getting a fifth less than before Quantitative Easing started*

There are other ways of saving for retirement which can deliver higher returns. The advent of Self Invested Personal Pension Plans (SIPPs) has opened up a whole raft of different investment choices. SIPPs are designed for people who want to manage their own fund by dealing with, and switching, their investments when they choose. For property to be an acceptable form of investment via a SIPP, it has to be commercial property, including hotel room investments (as long as they meet HMRC criteria).

SIPPable property can be UK, or overseas based. The choice will depend, to a large extent, on an investor’s appetite for returns and risk, existing investments, as well as what’s available on the market.

Benefits of Property – Hotel accommodation investment:

  • Strong rental returns – from 8% NET upwards (many property investments would deliver this or less and GROSS)
  • Less time-consuming or involving for the investor – the  hotel operator  manages the room  on a day-to-day basis
  • Consistent returns  – tend to be managed by experienced, global, hotel operators
  • Capital growth potential – compares favourably with other investment vehicles like bank savings accounts, (income only and low interest rates), equities (been volatile of late) bonds (values diluted with all the global quantitative easing)
  • Extra comfort – earn interest on invested monies during the hotel build and you can pay in sterling, thus minimising currency fluctuations and exposure
  • You can invest in either a whole unit, or if you are more risk-averse or cash is not free-flowing, on a Fractional Ownership basis, with some units starting from £9,000 making the entry level affordable.

NB: * thismoney.co.uk.

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Property Venture® is an award-winning, UK-based agency for overseas property who helps people buy investment property and holiday homes in Europe, more easily and safely than they can on their own, because we offer grounded common-sense advice.

The focus is mainly greater Europe: Poland property, UK investments, Spain property, Turkey property, Cyprus property

On the Advisory Board and a Member of the Association of International Property Professionals (AIPP) the business has been vetted, approved and voluntarily commits to Industry Regulation and the Professional Code of Conduct. We are known for our quality customer service and non-pressurised approach to sales. Take a look at what our clients say

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Property Venture® is not a member of, nor regulated by, the Financial Conduct Authority.  Past performance is not an indicator of future performance and should not be relied upon when making an investment decision. This blog post has been written in layman’s terms. You should take professional advice on pension matters. Figures are for guidance only. The value of currency may rise or fall as exchange rates vary and fluctuate. With regard to in-country legislation, letting licences and taxation laws, then you must take appropriate legal or taxation advice during your purchase process, at which time your solicitor or advisor will discuss with you up-to-date legislation and costs. Property Venture® acts as an introducer and is not involved with the development, management, or rental guarantee on any developments we offer.

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