Wait to Invest or Invest and Wait?
The following article features research from Brexit and Beyond: SevenCapital’s 2019 Brexit Survey which can be found here. Fundamentally we want to answer the question ‘is now a good time to invest in UK property?’
Is now a good time to invest in property?
Demand for property is often driven by sentiment rather than statistics – hence why we see rises and falls throughout the market. Brexit’s impact on the property market is still unknown and it’s this uncertainty that is driving buying decisions – no-one is sure how the property sector will react to the UK leaving the EU.
So what does this mean for investors? Should people be waiting to see what happens before they take the plunge? Or should they be taking advantage of the low-interest rates on borrowing, chronic undersupply and the upwards trends that are being forecast for many regions up-and-down the country?
It really depends on the strategy being employed.
Why Invest Now?
Long term strategy
If the overall aim of the investment is to build solid returns over a long period of time, there’s no doubt that now is the time to invest. The bigger regional cores in the Midlands and the North are benefiting from wide-reaching government plans that are making cities such as Birmingham and Manchester much more attractive as an investment location.
Similarly, the South East is seeing a rise in demand as people are looking to move out of London. Both businesses and commuters are looking for a lower cost of living, identifying towns and cities such as Slough, Basingstoke and Reading.
Both of these options are currently much more affordable than the London market and are forecast to see continued growth despite Brexit negotiations. Investors can not only beat the competition but get a better deal for their money.
Diversifying your pension and compounding
For many, investing now also means maximising potential returns. Pensions are generally weaker than they were in the past and may struggle to be the sole income across many people’s retirement. By investing now, there is more opportunity for building a solid, diverse portfolio that can deliver much more than relying solely on a pension. There’s also the question of time – will a state pension provide enough, soon enough?
Having additional investments can provide compound returns and, depending on when the investment is made, can deliver passive income over longer periods of time, freeing up capital to re-invest, supplement pensions or simply enjoy.
Record low interest rates
It’s also a question of whether investors will have this opportunity ever again. Right now, the UK market is a perfect storm of low-interest rates (the lowest they’ve ever been, even by pre-recession standards), high tenant demand and nationwide undersupply. There’s never been a time like this and probably won’t be for a long time in future – a time when the right investment can be incredibly lucrative because of all these factors coinciding together.
Why Wait to Invest?
The Brexit shadow
All investments carry their own risk and in a market that is undergoing significant upheaval, any predictions that experts make are just that – predictions. With such an unprecedented event, there’s every chance that an unfavourable Brexit deal could result in a struggling UK property sector.
The wait and see approach is a commonly used tactic by investors that want to perform their own research rather than investing based on headlines. Doing nothing is usually safer than panic investing and according to Moira O’Neill, Head of Personal Finance at Interactive Investor, nearly four in 10 are taking a ‘wait and see’ approach, not investing until there is more clarity around the UK’s exit from the EU.
Peace of mind
According to a survey by Interactive Investor, there’s an even split between the people who are doing nothing until a firm decision has been made (38%) and those who have a strategy and will continue to invest based upon it (39%). Nearly 13% of the audience is heading to less risky investments while 10% are looking to take advantage of the potential for volatility and trading more.
In any scenario, prices, interest rates and demand have never been in the configuration they are today – with some seeking to capitalise and others hoping for a fall.
Moira O’Neill believes it’s always worth having a look back before making a decision:
“Before selling your crown jewels and reducing your risk, it’s worth reviewing your portfolio in the context of any cash balances you may have – it may be that you are better positioned for a market storm than you think. It’s also worth looking at the cash positions in your funds. We have seen several funds increasing their cash positions over the course of 2018, so this is worth bearing in mind.”
What about Overseas Investors looking at the UK?
For overseas investors, this wait-and-see approach can be prudent for those that want to get a better deal on their foreign exchange, waiting for currency values to settle before making a decision. Those who do choose to wait may gain in stability but should the market stabilise opposite to their favoured direction, they may lose a dominant exchange position.
In terms of the impact on the construction and architecture sectors, less inward investment because of instability would contribute to the property market suffering. Brexit could also cause labour shortages which directly impact developments – both current and planned.
Whichever route you wish to take is ultimately determined by how risk averse you are as an investor and the faith you have in the stability of the market. There are advantages to be had in both cases and in terms of investing now, plenty of opportunities to start maximising returns early, guaranteeing a headstart on your investment objectives.