By Property investment is as old a concept as civilisation itself.
Integral to protecting the rights of dominion, privacy and use, property has remained one of the most attractive assets for thousands of years.
Obviously, property investment has come a long way through the ages.
The past 100 years alone have perhaps seen the most sizeable change, with the development of the mortgage industry providing a mass-market solution to finance property purchases, while the introduction of real estate investment funds (REIFs) has propelled cash into the market.
Widespread changes aside, property’s perennial appeal is because it holds the world’s largest collection of wealth.
Indeed, in 2020, Savills estimated the global value of real estate at $326.5 trillion.
Naturally, investors want their share of this enormous pie. For years, this was quite an exclusive market, but recent technological developments have not only made the market more accessible but changed the way profits are derived from it.
As market conditions have changed so too have its players, so who is the 2023 property investor? And what has impacted this?
The end of buy-to-let domination
Over the past century, there has been one dominant form of property investment: buy-to-let (BTL).
Typically, such investments involve individual or institutional landlords purchasing a home or building to let to tenants, allowing them to combine regular rental income as well as the potential for long-term capital growth on the asset’s value.
It’s not hard to see why this model has been so attractive. UK house prices have grown consistently and fast, catapulting from £53,000 in January 1993 to £290,000 in January 2023.
At the same time, monthly rent currently stands at an average of £1,190 per month in the UK.
Obviously, this is nothing new to even an amateur property investor. Likewise, investors will know that BTL investing isn’t as easy as it may seem.
These difficulties have grown over recent years, diminishing the appeal of the BTL market.
A combination of removing interest relief on mortgage repayments, ongoing and upcoming changes to energy performance regulations (minimum EPC ratings for rental property) and, more recently, high interest rates have added significant cost and complexity to operating a BTL portfolio, lessening investor appetite in this sub-market.
These factors show a noticeable impact: headlines of a ‘landlord exodus from the BTL market’ are commonplace.
While this is an exaggeration – the majority of landlords do not intend to sell any of their properties in the coming year, let alone entire portfolios – where there is smoke there is usually fire.
BTL investing no longer has the dominant grip it once had on the market, a notable shift has occurred in the property investment landscape.
A widening pool of investors and opportunities
For many years, property investors were perceived to wealthy middle-to-older-aged men with extensive BTL portfolios.
Today, that is not the case. Nor is the market dominated by high net-worth individuals. Today, property investment is increasingly open to all retail and sophisticated investors.
But how did this change come about?
Firstly, over the past two decades, technological advances in the sector gave rise to app and web-based property investment platforms which have become particularly prevalent over recent years.
As such, brokers, asset managers and advisers are no longer the gatekeepers of property investment; proptech investment platforms have indeed created a more equitable market unlocking property investment to the retail investor.
Independent research, commissioned by Shojin last year among 690 retail investors in the UK (all with portfolios in excess of £10,000) highlighted this point.
We found that close to half (48%) of investors said that in the past five years, online and mobile investment platforms have opened up new investment opportunities that they could or would not have accessed before; even more notably, among those aged 18-34, this figure jumped to 73%.
Secondly, alternative investments, notably fractional property investment and co-investment models have become increasingly popular.
This has shifted the focus of the property market away from solely equity-based investment (where the investor owns the building assets) to now include debt-based real estate investing, in which an investor provides capital to a developer or asset manager to achieve interest on the investment over a period of time.
These converging trends, alongside the pressures facing the BTL market, have bolstered appeal in real estate investment opportunities without owning the asset, particularly to investors looking for more short- and medium-term investments or those without the capital to invest in traditional BTL purchases.
A new property market with new players
The fortuitously timed rise of alternative investments and technology has restructured a new world of real estate investment – one which is no longer the reserve of high-net-worth individuals or institutions.
Rather, it is one increasingly occupied by retail and sophisticated investors; one that is fundamentally more accessible than previous models.
Across the globe, property remains a compelling asset class to millions of people.
Although the cries of a crisis in the BTL market are exaggerated, it is true that the property investment market is becoming less dominated by this sub-market, opening up opportunities in the sector to engage a wider pool of individuals with greater choice of investment opportunities.
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