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Is it better to invest in property or stocks in the UK?

June 27, 2024

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Key Highlights

UK

Property has long been lauded as one of the safer methods of investment. Yet with high mortgage rates and a volatile market, is this still true today?

For the would-be investor, there are lots of potential avenues they can take to maximise their wealth and introduce cash flows. Often, investors are torn between two major types of investments: stocks and property. 

It can be hard to tell from the off-set which would be the most beneficial. From a quick glance, it can be hard to ascertain. This property investment guide takes a deep dive into both, looking at each type of investment’s advantages, potential for returns, and characteristics. In this article, we’ll look in depth at each and explain why the property market, despite its current volatility, is the better investment option.

 

Property Investment

Investing in UK real estate has always been favoured as a strong investment option, with positive returns and the fact it is a tangible asset. It is generally considered to be a “safe” type of investment compared to stocks and bonds.

Property investment is the act of purchasing a property with the intent of renting it out to generate income, build wealth, and build capital. The scope of property investment is broad and can include residential property, commercial property, industrial property, and land.

  • Residential Property: This is one of the most common forms of property investment investors choose. This will include family and multi-family homes, apartments, condos, and more. Investors can purchase property to rent, renovate, or sell, or a combination of the two. It is considered the best option for those just starting out.
  • Commercial Property: Commercial property is used for commercial purposes, such as offices, retail spaces, hotels, restaurants, bars, and anything else that falls under commercial real estate. These spaces will be leased to businesses and will often have much longer leases compared to residential leases. Commercial property investment often requires more expertise and knowledge, making it not a great option for beginners.
  • Industrial Property: This refers to warehouses, distribution centres, and manufacturing facilities, amongst others. Typical renters include businesses that are heavily involved in production, storage, and distribution.
  • Land: Investing in undeveloped land can be profitable, particularly if the particular area is expected to experience growth and development.

 

Benefits Of Property Investment

The overarching benefit of investing in UK property is that it builds income and wealth. Renters provide a steady stream of income to investors. Not only this, but the property will increase in value over time. When the time comes to sell, investors will have made a profit and often get a hefty sum back. This is called capital appreciation.

However, there are a few more nuanced benefits and perks to consider when choosing between property investment or stocks.

Capital Appreciation And Property Value

Globally, the UK property market has long since been seen as a lucrative form of investment due to its stability and potential for capital appreciation and wealth growth. In 2023 alone, the average UK house price increased by 6.3%. In 1970, the average property price in the UK was £3920. Today it stands at £299,000. While no one is going to wait 50 years to see a positive ROI, it is clear that property is the most stable and the most profitable in the long run. It varies from region to region, but currently, the North West of England is experiencing some of the best property growth and capital appreciation in the UK.

Stability

Stocks and shares are more prone to fluctuations and market volatility than property can be. The UK property market is also particularly favoured in the property investment industry as the UK is typically considered a safe bet when it comes to stability. Economy-wise, it is one of the strongest in the world. It is politically stable, with no intense periods of political unrest or disruption. It has a high level of immigration, strong population growth, and an educated workforce, which ensures that there is always a steady supply of quality renters.

Tangible Asset

Property is a tangible asset. Stocks and shares are liable to fluctuate in value, rapidly decreasing at a moment’s notice. While property prices are liable to fluctuation just like stocks are, even if the property’s value decreases slightly, the investor still has the property as a tangible, physical asset that cannot deplete or disappear. This is what we would call a tangible asset.

Greater Control

With property, investors have much more control over their investments than compared to stocks. Investors are often passive actors in the stock market, whose shares are often at the mercy of the market and company management. Property investors can actively manage their investments and have a direct impact on the property’s value. 

Accessibility

Property investment is often favoured by potential investors as it is, by and large, far more straightforward to get into than stocks and shares. Stocks and shares can appear daunting to most people, especially as it comes with a large learning curve and a lot of prior knowledge and tips and tricks are necessary to be successful. 

Property, on the other hand, is far more straightforward. A person simply purchases a property and puts it on the market for rental. While there are a few things that investors need to know beforehand, largely they can leave a lot of the finer details to property investment agencies that can manage that side.

Tax Benefits

Becoming a landlord and property investor can come with a range of tax benefits to make it cheaper and more profitable. Investors can deduct the cost of the property over time, reducing their taxable income. Any interest paid on loans used to acquire a property for rent can often be deductible. Also, additional costs that arise from routine property management can be classed as an expense and be deducted from rental income.

In some cases, investors can even get a discount and relief on Stamp Duty Land Tax (SDLT) if they purchase six or more properties for rental at once. Other forms of relief can come in the form of Business Asset Disposal Relief for investors who have short-term rental properties. Capital gain on sale could potentially be taxed at 10% as opposed to 28%. In some cases, investors can even save on income tax by paying corporation tax instead if they purchase the property through a property investment agency.

Inflation Hedge

Real estate is often considered an effective hedge against inflation. As the cost of living rises, so do property values and rental incomes. This means that real estate investments can maintain or even increase their value in real terms during inflationary periods. Stocks, on the other hand, can be more vulnerable to inflation, especially if rising costs squeeze company profits.

 

Challenges

While property investment in the UK might seem straightforward, and by and large it is, it still comes with its own set of challenges that need to be considered. UK real estate does require active participation, management, and maintenance. This can be time-consuming and costly, particularly if the investor in question doesn’t have maintenance skills and needs to outsource labour. There are plenty of hidden costs that need to be considered, such as repairs, legal fees, and more. Issues can also arise with tenants, such as bad tenants, destruction of property, and costly void periods where the property is not being tenanted. Real estate requires active management and maintenance, which can be time-consuming and costly. Investors must also navigate market conditions, regulatory changes, and more.

However, it’s not all doom and gloom. Challenges like these can be mitigated and prepared for, with investors planning and creating safety nets for when things go wrong. A property investment agency is fantastic in helping investors start their investment journeys and can guide them through management. They also offer market analysis and research which can help investors find opportunities and avoid pitfalls.

 

Stocks And Shares

The Benefits Of Stocks And Shares

Investing in stocks and shares offers a variety of benefits that make it an attractive option for many investors. Here are some of the key advantages:

High Returns

With stocks, there is a strong potential for your investments to appreciate a lot over time. It tends to provide higher returns compared to bonds and real estate. Also, a lot of the time companies will distribute a portion of their earnings to shareholders in the form of dividends, which can act as a stream of regular income alongside capital gains.

Diversification 

Investors will often invest in a diverse range of stocks, spreading risk across different sectors and industries. Investors can also get access to a wide range of markets. Utilising mutual funds, exchange-traded funds, and global stocks, investors can access international markets and further diversify their portfolios.

Accessibility

Investing in property tends to require a lot more upfront costs to purchase a property. With stocks, investors can invest small amounts of money and still make returns. This makes it a far more viable option for a lot of people. Stocks can also be easily managed through online accounts where investors can track performance and buy and sell shares.

Other Benefits

Other benefits include tax benefits such as retirement accounts and long-term capital gains. Growth can be achieved through passive investing and there is often a lot of potential for compound growth. The stock market is also highly regulated, which means transparency and some security for investors. All publicly traded companies must disclose financial information regularly so investors can make informed decisions.

Liquidity

Some shares can be liquid – i.e., They are cash shares that can be accessed easily, which means investors can sell them more easily. This is referred to as liquidity and it can be hugely beneficial when an investor wants to sell their investments quickly if they need immediate cash or can sell a few shares here and there when extra money is needed. It offers a great deal more flexibility with your assets, meaning that you can sell them and turn them into actual money when the need arises. This is harder to do with property. A property, without tenants, can still spend a long time on the market before it is sold to a new buyer.

It should be pointed out that this benefit isn’t always infallible. Shares are still prone to market fluctuations, and when cashed out the value might have decreased. Some shareholders also have fees for early withdrawals.

 

Challenges

Volatility

The stock market is extremely prone to volatility, and share prices can plummet drastically overnight. While in the stock market, investors can achieve dizzying heights and net huge profits, they are also extremely vulnerable to devastating losses. Stock values are highly dependent on numerous factors and tend to be extremely sensitive to events in the market and outside of it, affecting the stocks’ value both positively and negatively.

Potential Losses

As the market is volatile and prone to fluctuation, this can mean potential losses. A company’s share price could hit zero. When that happens that means all money invested in that company disappears. Investors tend to invest in several different companies to spread risk, but losses when a company goes under still happen and a lot of companies do declare bankruptcy. 

Learning Curve

Investing in stocks isn’t for the fainthearted. It requires a lot of work, dedication, insider knowledge, and constant learning. Investors need to keep up with the market, economy, interest rates, fluctuations, growth projections, changes, and any event that could potentially impact share prices. For beginner investors, this can be daunting and difficult to master. As such, stocks and shares tend to not be the best option for investors looking for a more laid-back and hands-off investment.

 

Summary

Property investment is often more stable and has the potential for more returns as opposed to stocks and shares. As a real, tangible asset, property is far more stable than highly volatile stocks. While property comes with some learning curves, this can be aided through research, preparation, and using an investment property agency that can help find opportunities and manage the property. 

North Property Group is an investment property agency and lettings agency, which specialises in UK new build and uk off plan property. We also offer a comprehensive lettings management service, providing support and guidance during the tenancy lifecycle. Book a free consultation with us today and start your investment journey.

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The Bailey

From £249,950

Yield: 13.5%
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   Est. Q4 2024
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