According to statistics released by BRDC Continental, an independent research organisation, 81% of landlords view their property as a pension. This figure is staggeringly high but not all that surprising given the current economic uncertainty. But are too many landlords putting their eggs in one basket: is property the right sort of asset for the pension fund?
Property Accumulates Slowly
The average length of a mortgage in the UK is around 25 years and that tells you something about how value can be accumulated on property. Property investments do take time to mature and, therefore, property lends itself to long-term investment. Investing for the long run also allows time for the costs void periods (loss of rent, mortgage interest and unoccupied property insurance) to cancel themselves out.
Property CAN Crash
On the other hand, property is never a guaranteed safe asset and though we have seen steady and significant growth for many years, that won’t necessarily continue. It’s always difficult to spot a bubble before it ends, but even after a year of flat prices, property values don’t necessarily correspond to their current prices. This isn’t a phenomena unique to property, though and it affects all asset classes.
Pension Planning and Liquidity
A house is only worth anything in financial terms if you can exchange it for cash which, of course, relies on you finding a buyer. If you are relying on property to fund your pension then it is worth thinking about how and when you are going to convert your property into something more liquid, i.e. cash. With property it’s just about taking the market at the right time and a better investment can sometimes be had from selling up two years earlier than you wanted.
Undoubtedly property can be a strong performer in a balanced portfolio, but don’t assume that a property investment is infallible. It takes time, effort and investment to make buy-to-let property work and that’s why the returns are so great.