Although Signature continues to perform strongly providing funding for the residential buy-to-let market, there have been plenty of scare stories recently about investors switching interest from residential property to the opportunities offered by commercial property investments.
Although an interesting diversion, the Telegraph’s claim that “buy-to-let is dead”, was I believe something of an oversimplification and a dramatic click-bait.
Since the buy-to-let changes were announced, we have experienced a rise in enquiries for short-term property finance in relations to commercial property. However, we are yet to witness any decrease in interest in residential property, so it seems savvy investors have merely sensed another opportunity.
Last year was challenging for the commercial property industry. It was one of the first sectors to be affected and hardest hit after the Brexit vote in June, with some commentators reporting commercial property investment plummeting to its lowest level in four years, during the first quarter after the referendum result was announced.
But since November, the industry has gained momentum and seems to have turned a corner. Some of our regular clients with residential property portfolios have sought to purchase commercial properties, importantly all with planning permission for change of use.
It’s interesting to see how our customers are adapting as their industry undergoes change. Plenty have already sought to discuss projects relating to offices and retail property, with office buildings ready for conversion to residential and mixed-use retail with flats above, an increasingly popular choice for investors.
Last week, an investor enquired about bridging finance to help purchase a mixed-use property, with ground floor offices and flats above. What made this an ideal subject for our interest was that it came with planning permission to redevelop it into a ‘House in Multiple Occupation’ (HMO).
Others are looking at office blocks with planning permission to renovate into flats or student accommodation, but as always, it’s the speed of our decision that makes the difference and allows them to seize these opportunities.
The buy-to-let changes have now come into force and are far from driving investors from the market, I believe we’re just witnessing savvy investors shaping their property portfolios accordingly.
Some have even commented on the apparent tax loophole, with commercial property yet to be affected by the tax changes; which may explain the switch of focus for some investors.
There are other clear benefits of investing in commercial property, with its long-term leases providing an often more reliable income and fewer costs to bear as the landlord.
A commercial property with flats above, or with planning permission to convert, are well known to offer potential higher rental yields and investors have clearly been doing their sums to ensure they’re operating a profitable portfolio; one that’s capable of securing future growth too.
Operating a large HMO with a license can mean dealing with a higher tenant turnover which can be more intense than single buy-to-lets. But a property with an office or shop on the ground floor can add stability to the overall rental income.
And of course, business tenants tend to sign-up for longer leases and landlords are usually able to avoid some of the costs borne by residential landlords, with business tenants more likely to pay for their own building insurance and repairs, as well as business rates.
It will be interesting to see what happens within the bridging industry over the following months now the buy-to-let changes have come into effect. Here at Signature, we’re ready to adapt to the developing needs of our customers, regardless of any changes within the industry.