From buy-to-let to hotels: why now is the time to make the big switch (Part 2)

By April 26, 2017 No Comments

Market distortion

The FT reported the surge back in January 2016, and highlighted the risk of housing market distortion created by the aforementioned short window of opportunity. And guess what? That’s exactly what happened. The deadline created a tight bottleneck through which buy-to-let landlords fought, skewing the otherwise steady figures of economics. By fault or design, Osborne forced higher the number of rental properties suddenly on the market. Hammond, of course, will reap the rewards from the seeds his predecessor has sewn, perhaps long before many accidental landlords become truly cognisant of the fact that they will be the ones paying for it. Then, as the realisation of what’s happening takes hold, buy-to-let landlords come 2018 will start dumping their loss-making properties in droves, and the Chancellor will enjoy another round of income from the churn. Anyone who doesn’t think this is a game of fast juggling in a smoke-screened hall of kinky mirrors ought to think again.

Of the deadline, the Professor or economics at the University of York, Peter Spencer, said this time last year, “This mistake guarantees a bunfight in the first quarter followed by a relapse over the rest of the year.”

And guess what?

What Osborne effectively did, the fallout of which we’re seeing now, is turn the buy-to-let housing market into a cut-price sale ahead of unavoidable rising capital costs. Of course, all of this amounts to more pain for landlords. With the additional stamp duty on second homes now in full swing, the first stage in new tax calculation measures phasing in, tighter controls on lending, plus the spectre of interest rate rises appearing on the horizon, combined with news that rents are starting to fall, are compelling investors to angle their eyes upward, in the direction of less contentious, less emotive, higher yielding propositions.

Strategy Exit

“For a lot of landlords, the exit light above the door is glowing a brighter shade of green,” says Nick Carlile, director of Shepherd Cox. “If there’s one thing investors dislike intensely, it’s increasing levels of investment complexity coupled with higher levels of taxation and ever-diminishing returns. As an investment proposition, the residential housing market is becoming more labyrinthine and less rewarding by the year. Those breathing a sigh of relief are the ones that have managed to find their way out before all of the measures fully kick in.”

The solution now? For many mortgaged landlords, particularly those that missed first the gravy train of high yields and good capital gains with limited downside, it’s going to be a straight case of throwing in the towel. As our recent article showed, even big hitters, such as Cherie Blair, have tried taking the government on over this. They weren’t even granted a hearing. There can be no greater bellwether for where that buy-to-let gravy train is now headed—straight for the buffers.

Diversify and thrive

Given this emergent scenario of doom and gloom for the residential property sector, are there other places investors can turn to that will allow them to substantially move the needle on yield while ridding themselves of draconian administration, punishing fees, and severe taxation headaches?

In a word ‘yes’.

Hotels…the new hot property

Today, hotels are seen as a far less complicated place to invest because, from a populist point of view, they’re less emotive. And while it would foolish to think that emotions can’t run high in any sort of investment, Hammond certainly doesn’t have this sector in his sights in the same way he does the residential housing market. Meanwhile, for investors, as the fiscal implications—i.e. the rising costs of second home ownership and privately owned portfolios, start to bed down—and the number of distressed landlords steadily begins to rise, the migration away from buy-to-let toward hotels seems imminent. Once the word is out, as with HMOs, the market will eventually become saturated, simply because investors are always looking for places to safely house their capital and enjoy a steady income based on a guaranteed return of 8% or more.

Reasons to be cheerful

Airbnb’s recent valuation at $30billion, far higher than the valuations of the Hilton or the Hyatt, if nothing else highlights the health of the temporary accommodation market. And while some hotel brands have seen this as a threat, many see it simply as the ultimate litmus test that proves a healthy market. In both work and leisure, people are more mobile than ever, and when they travel, they need a place to stay. Airbnb certainly fills an accommodation void and has helped turn empty rooms into cash generative assets, but for the millions of people happy to lodge with owners for a night or two, there are as many who want the privacy and variegated service options of a professionally run hotel.

For more information on moving your capital from buy-to-let property into hotels, with a guaranteed return on 8% or more, call us today.