New pension rules that came into effect in April 2015 mean over-55s can now withdraw large lump sums from their pension and invest it as they choose. However, the way in which these investments can flow into commercial property, and the potential impact on the market, is hotly debated.
Commentators are questioning whether or not pension funds will be used to enter the buy-to-let market; many, including James Pickford at the FT, have approached claims of a potential boom with scepticism.
The median pension pot currently stands at just £25,000 – hardly enough for a house. Throw in concerns over taxation, the risk of over-exposure to residential property, and the management costs, and you can see why not everyone’s convinced. In fact, a Fidelity Worldwide Investment survey found that just 4% of people retiring in 2015 planned to use some of their pension money to buy-to-let.
A different approach
Commercial property is, however, a different beast. Healthy returns of 19% in 2014 is a headline figure investors will find hard to ignore: even with slightly less bullish predictions of 10-15% returns this year. What’s more, the process of investing in commercial property has certain advantages over investing in buy-to-let properties.
Firstly, there's a large number of solid performing commercial property investment trusts, including ‘open-ended funds’, which don’t trade at a premium. And with investment trusts, managers aren’t forced to sell assets if some investors want to sell – unlike direct investments in property. Telegraph Money reports that it’s also seeing small investors and financial advisors buying commercial premises and placing them into a SIPP (Self-Invested Personal Pension).
Developments like these mean that commercial property is becoming an attractive option as a pension investment, and it could impact on commercial property markets in 2015. As well as increasing the value of commercial property, some experts like Rougemont Estates suggest that the increased competition may force investors into taking more risk in order to get attractive returns.
This tighter competition and increased risk makes it more important than ever to ensure that you have a healthy cash flow. That means monitoring your investments, maintaining liquidity and ensuring that tenants are paying on time.
If you need help managing commercial rent arrears or want to speak to a debt advisor, contact us today.