James Logan, Associate Director at Caxtons Chartered Surveyors, was recently asked to provide expert opinion on the BBC One television programme Homes Under the Hammer.
James, who works out of Caxtons' Canterbury office, specialises in commercial property and was pleased when this popular daytime programme, known primarily for featuring residential properties sold at auction, asked for his input.
Located over four floors, this prime property was sold at auction in March 2013 for £114,000. Having applied for and been granted change of use the new owner set about extensive refurbishment, dividing the property into a retail unit on the ground floor with a staff area in the basement, creating a new access to the two floors above, which were then converted into a two-bedroom maisonette. The entire refurbishment cost in the region of £43,000 making a total investment for the purchaser of £157,000.
Driven by a surge in consumer confidence, the UK economy is gathering momentum, which in turn has led to growing interest in property investment.
Currently, savings accounts only pay 1-2% whereas property can offer more attractive returns ranging from about 5 to 10% plus.
Representing the lowest risk but still producing initial yields of 4.5 to 6%, are residential properties, prime offices, retail units and retail warehouses.
Higher risk properties can offer more than 9 %, for example, retail units in secondary locations, older offices and industrial properties.
Property offers the potential for diversification, both in terms of type and location, thereby reducing risk. A typical portfolio may include both residential and commercial property and within the commercial element, a balance of retail, industrial and office property.
Another significant attraction is the prospect of exploiting asset management opportunities. For example, converting disused parts of shops to residential use, thereby enhancing income; renegotiating leases; obtaining planning permission for change of use or by extending or converting the property.
Chancellor of the Exchequer, George Osborne's 2014 budget saw what has been hailed as the most radical overhaul of the pensions system in nearly a century, and as a result will now give savers the opportunity to withdraw large lump sums from their pensions to reinvest as they see fit, potentially in higher yielding assets such as property.
Prior to the introduction of the changes, due to take effect from April 2015, individuals who have built up a lump sum in a defined contribution or money purchase pension have the option of either keeping their fund invested and receiving an income drawdown, or exchanging their savings for an annuity. There has been the option of making withdrawals of up to £18,000 but some believe very few have taken advantage of this due to the complex rules which surround it.
Closely linked to the return on annuities, the 15 year gilt yield currently stands at 3.22% and has seen increases over the last 6 months, although, some expect it to experience limited growth going forward.
However, the pension changes mean that savers will no longer be pushed into buying annuities. They will instead benefit from the flexibility of being able to access the entirety of their pension at any time after the age of 55, although withdrawn funds will be subject to income tax at marginal rates on 75% of the total amount whilst 25% remains tax-free.