Three reasons to diversify your property portfolio in 2021
Em Morley - March 1, 2021
This guest piece was written by Andy Foote, Director of SevenCapital.
SevenCapital discusses three reasons why 2021 offers a positive landscape for diversifying your property portfolio. From low supply and rising demand to evolving tenant priorities and a promising 2021 forecast, read on to see what’s in store for the property market.
When the clock struck 12 am on 1st January 2020, society was blissfully unaware of the challenges that were yet to come. Business owners were oblivious to the factors that would soon come to determine the fate of their companies, while investors hadn’t given the possibility of a global pandemic a second thought – but who had?
If 2020 taught us anything, it’s to expect the unexpected. From the Brexit transition period to Coronavirus and England’s eighth recession, every industry in the UK (and across the globe, for that matter), has had to adapt in order to overcome these turbulent times. While this was easier said than done for some industries, the property market not only survived multiple national lockdowns and countless tier systems, but it made history with record-breaking highs.
The resilience of the property market in 2020 offered existing and prospective investors the reassurance that the industry continues to be a reliable investment asset, but with 2021 presenting many possibilities, what makes it an opportune time to diversify your property portfolio?
The rising demand for property
In an industry that relies heavily on teamwork and clear communication, national lockdowns and strict social distancing guidelines were, and continue to be, difficult for the construction industry to overcome. With government regulations significantly reducing the amount of workers allowed on a building site at one time, the supply of new build property quickly entered a downward spiral. As the end of the financial year approached, and completions fell by 13%, the shallow supply of new build property remained for the entirety of 2020.
However, the combination of the initial market freeze and the UK’s first national lockdown resulted in pent-up demand for property and acted as a catalyst for the post-lockdown boom we saw when the market reopened. Fuelled by the Stamp Duty holiday, the global pandemic intensified the perfect combination of shallow supply and high demand.
As SevenCapital discusses in their ‘Life After Lockdown’ Guide, the ripple effects of the post-lockdown boom are continuing to propel the property market, with a limited supply of new builds remaining and the impending Stamp Duty holiday deadline instilling a sense of urgency amongst buyers. As a result, the average UK house price has reached record level highs for the fifth consecutive month, surpassing £325k for the first time in history.
This disparity between supply and demand offers the ideal conditions for diversifying your property portfolio. While the lag of supply will likely remain indefinitely, the demand for property will continue to dominate, not only driving house prices up but also rental yields, maximising your rates of return.
Location, location, location
Tenant priorities are constantly evolving, and with 2020 presenting many unexpected challenges, residents have become more demanding of their properties. To meet these priorities, many tenants have had to relocate. As a result, we have seen a reduction in London living, with many tenants trading micro-living for more spacious – yet affordable – properties outside of the capital.
This coincides with the advantages of investing in properties across multiple locations and especially emerging hotspots. Whether you choose to invest in established cities, such as Birmingham and Manchester, or opt for smaller commuter towns, having properties in different locations will reduce the impact of evolving tenant priorities. However, when deciding where to invest your capital, consider the local market – are there regeneration schemes underway? Is it a town to watch? Emerging locations provide a unique investment opportunity, where you can invest at affordable prices before the towns undergo natural capital growth, which in turn, will push the value of properties.
As you’d imagine, this means a diverse property portfolio can be achieved in multiple ways: most commonly through different property types or properties across multiple locations (or even a mix of both). Both avenues have many advantages, but ultimately, achieve the goal of reducing risk across your portfolio. With 2020 demonstrating a shift in tenants’ priorities and the continued demand for property, 2021 offers an opportune time to diversify your portfolio to suit the needs of the modern renter.
The economic forecast
2020 saw the UK enter its first recession since the 2008 financial crash, bringing with it low-interest rates and the Stamp Duty holiday aiming to stimulate consumer borrowing and spending. While the possibility of negative interest rates presents an unprecedented situation, the combination of these efforts could easily result in more accessible mortgages and more affordable property prices for prospective and existing investors.
But, with the Brexit deadline looming throughout 2020, the potential impacts of leaving the EU continued to be a key consideration for investors, as it was since the 2016 referendum. The prospect of leaving the EU without a trade deal was daunting, and seemed to be a possibility for the majority of 2020. However, escaping with a free-trade deal has minimised the short-term impacts of Brexit on the economy, and this post-Brexit confidence has undoubtedly contributed to the continued surge in demand that we are seeing.
While the UK is currently in its third national lockdown, the rapid spread of the Covid-19 vaccinations holds the potential for an economic rebound and the return of some degree of normality. In providing more jobs and travel opportunities, the property market could continue to grow, with more money throughout the economy sustaining the demand and ultimately, strengthening the market for property investors to diversify their portfolios.
After the past 12 months, it would be easy to adopt the ‘wait and see’ approach when diversifying your property portfolio. However, 2021 presents many possibilities for property investors to diversify their portfolios, especially with the storm of supply and demand pushing the average house price and increasing rental yields. The many emerging hotspots across the UK only increase the opportunities for investors, offering affordable prices and promising growth for the coming years. When considered in conjunction with the positivity of the property forecast, the reasons to diversify your property portfolio in 2021 with UK property are only strengthened.
About the Author
Andy Foote is the Director at SevenCapital – a leading UK property investment and development company. Combining deep expertise with an unrivalled track record, SevenCapital is recognised internationally for its end to end property services.