The volume of changes in the residential property market for buy-to-let landlords over the past few years has applied some pressure to the viability of residential property as an investment vehicle. Could it be time instead for traditional, residential landlords to turn to the commercial property sector for more favourable returns?
Market analysis of residential buy-to-let
Pressure has been building on the residential buy-to-let market for some time; partly due to rising house prices and a shortage of houses, but also due to social pressure on government to make the housing system fairer and to help more people on to the property ladder.
That social pressure has seen a number of tax changes come in to effect, including stamp duty changes and the way in which tax relief on buy-to-let properties is handled. All of which is having an impact on the number of buy-to-let transactions.
Alternative property investment choices
Commercial property investment is very different to residential property investment. Whilst commercial property does offer high-value yields and better tax arrangements, the risk factors are very dependent on the success and viability of the business that is renting the commercial space. And with a general downturn in high-street shopping, the choice of commercial property is paramount. There is the potential for greater periods of time without a business tenant renting the commercial space, and unlike the residential market, there may not be competition to rent the property. That general lack of demand for some commercial property can put a squeeze on rental yields, so it is a balance.
However, the strong yields and favourable tax treatment of commercial property does make it attractive. Commercial property is exempt from stamp duty surcharges. That means that, unlike residential buy-to-let property, it doesn’t incur the extra 3 per cent tax. Additionally, mortgage interest costs can be offset against profits, providing useful tax relief against the cost of financing the commercial property.
The choice between residential property investment and commercial property investment is a balance. Perhaps a mixed portfolio choice helps to hedge the bet.
Hiten Ganatra, Managing Director of Visionary Finance: “Changes in the residential buy-to-let space is making commercial property investment more attractive because it isn’t subject to the same pressures. If you are seeking a commercial property investment you should seek some professional advice so that you are aware of the implications before making your investment choice.”
Visionary Finance are expert mortgage brokers, dealing in both the residential and commercial space. The team have access to a broad panel of lenders, sourcing mortgages and finance across a range of products. To discuss your investment choices, call the team on 01908 465100.