How to invest in the British real estate market during COVID-19 sales boom
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The COVID-19 pandemic drastically affected many industries, but, surprisingly, the real estate market in the UK witnessed a boom. Houses that were once difficult to sell are now being purchased above asking price in what has been a record year for home sales in the UK, as it has been in other countries.
While the pandemic has triggered a financial crisis on some level, property sales tell the opposite story. Prices of properties in the UK have continued to climb, with official figures showing an upward trend of a 10.2 percent increase in value compared to a year ago—making it the fastest annual growth rate in 14 years. Even houses that are somewhat peculiar in build and style are quickly being sold in just a matter of days; buyers are desperate to grab whatever they can after predictions of an imminent crash in property prices were proven to be completely off the mark.
“Homes that look like the last turkey in the Christmas shop window are flying off the shelves at the moment,” Henry Pryor, a property estate agent, told the Guardian.
While the property boom came to a temporary halt during the first lockdown announced in early 2020, that break didn’t last. Sales soared over the course of the summer. And that growth is still ongoing, albeit at a slower rate. Along with the technology sector, the data shows that the real estate industry was a huge beneficiary of the pandemic.
This sales boom can mean big things for those with the means to capitalize by investing in the British real estate market. The primary methods of investment are through buy-to-sell, buy-to-let, development properties, and Real Estate Investment Trusts (REITs).
Before making any investments, however, it's critical to understand the UK's hot markets, as well as the potential of risk and return that is part and parcel of real estate investment. Major cities with thriving industry and civic life, like Liverpool, Birmingham, and London, are the most popular and high yielding choices for foreign investors due to the high demand for properties in these areas.
Securing financing for your investment is, as always, a crucial step in the investing process since purchasing a property in the UK requires a significant amount of money. While there are a number of financing options available to investors, securing a mortgage from banks in the UK can be difficult for foreigners. Some financial institutions impose very strict requirements, depending on the type of property. This might include high minimum down payments to ensure the loan amortisation period is lower than most.
Once you have secured funds for your investment, the next step is to look for the best deals on the market for properties that suit your investment plan.
With a buy-to-let investment, investors typically purchase a property with the sole intention of leasing it out to either private or corporate tenants. This allows them to make money from the property off of monthly rental income and equally benefit from capital growth once the property value appreciates. Due to the multiple income streams, this investment type is the most common among investors.
On the other hand, with a buy-to-sell investment, the main source of revenue is through property sales. This entails both waiting for values to appreciate organically and putting in major renovations to entice buyers and drive a bidding war. With property prices increasing in value due to the pandemic, now may just be the right time to cash on this investment strategy.
Typically, investors who choose this strategy search for cheap properties, refurbish them, and then sell them for a much higher price, earning a substantial profit margin in what is commonly known as property flipping.
Buy-to-sell investment is a short-term strategy and is a lot riskier than a buy-to-let, especially if the investor chooses the wrong property to flip. They can easily lose money through excessive renovations or if the final cost of acquisition is too high for the investor to make any profit.
Property development is another strategy for investors looking to invest in the British real estate market. This requires you to purchase land or property for the sole purpose of developing it and selling it afterwards. While this strategy gives investors more freedom in terms of building specification and planning, it also requires a lot of time, money, and expertise in ensuring the property is developed perfectly.
The last option is to get in on an REIT. These are companies that own, manage, and operate income-generating properties in the UK—investors can tap into various streams of income generated by the British real estate market during this pandemic boom.
Participants in this program are indirect investors of properties in the UK and earn income through dividends paid out by the REITs at specified times. While they don’t have much control over the properties they’re investing in, it is generally viewed as a much safer and lower-risk alternative to other investment methods.
Real estate investment should be treated like any other portfolio option. A wise investor would carry out thorough research into the investment method to determine which is best suited to their short- and long-term objectives before going ahead with it.