The residential buy-to-let market has been one of the boom areas in property for the last twenty years, but figures show that the number of properties bought as buy-to-let investments in the last 12 months have almost halved. An average of around 6000 properties per month were changing hands in the first half of 2017, compared with figures of 10,300 in February 2016, and 11,800 in July 2015.
Increases in stamp duty, changes to mortgage tax relief, and stricter regulations are said to be the main reasons for the slowdown. The National Landlords Association reports that a fifth of buy-to-let landlords are now looking to sell properties, and that over 80% are no longer looking to expand their portfolio.
However, all is not lost for those still looking to the property market as a sound and potentially lucrative investment. As the residential buy-to-let market has declined the number of buyers of commercial properties, particularly shops and offices, has seen a marked increase. Currently the tax rules relating to commercial premises are less onerous than for residential properties, and with fewer regulatory demands, entering the commercial buy-to-let market can seem a much simpler and cost effective option.
Many residential lets are naturally short-term in nature, whether they are 12 month lets to groups of students, or to families moving into an area and renting before buying a home of their own. In contrast, most commercial renters are looking for a stable, longer-term lease, where knowing their overheads is an integral part of a sound business plan. The costs for a business of re-locating every few years would be unsustainable, and so long term occupation of a property is a much more preferable option. Additionally, most commercial renters will be liable for many of the associated expenses of the property, such as repairs and insurance, something which can potentially save the owner many thousands of pounds. Contrast this with the stress and burden of being a residential buy-to-let owner, where repairs and damage can be a constant headache even if handled at arm’s length through a property agent.
The tax benefits from owning a commercial property can also be extremely attractive, whether the property is funded through a personal purchase, via a company arrangement, or by means of a SIPP (self-invested personal pension). Business owners can find SIPP-funded purchases particularly useful, due to the likely tax savings and the fact that the rent on the business property is paid directly into their pension.
One thing looks certain – the cash cow that has been the residential buy-to-let market for the last two decades is starting to lose its’ appeal. Commercial buy-to-lets could be the next big thing in property investment.
For advice on all aspects of commercial property purchases, leases and rent reviews contact our commercial property specialist Osman Dervish