As the Government continues to squeeze owners of buy-to-let properties, it is perhaps no great surprise that there has been a seismic shift towards commercial property investment in recent years. Property associate Shazan Miah, explores this in more detail.
As we all know, it is becoming increasingly difficult for individuals to acquire and maintain buy-to-let properties. The drastic increase in stamp duty land tax (SDLT) since April 2016, has rendered this an unattractive investment for many prospective buyers. To rub salt into the wounds, those who already own buy-to-let properties are facing a sharp increase in the level of tax payable each year – as mortgage interest will no longer be a deductible expense.
Naturally, many buyers are now looking at commercial property as a better investment than buy-to-let houses. High street shops are the most popular alternative investment, followed by restaurants and offices.
Why choose commercial property?
- The tax savings are an obvious advantage, as commercial properties do not attract the same crippling SDLT rates as buy-to-let houses and any mortgage interest paid will be deductible as an expense.
- Rental yields tend to be greater, although the growth in capital value of the asset over a period of time is less predictable. Houses tend to go up in value, whereas commercial properties are more volatile.
- Maintenance costs can be lower as commercial tenants generally accept responsibility for insurance and repairs.
- Commercial tenants tend to sign up for longer leases, providing a more reliable source of income. However, commercial properties will remain vacant for longer periods as it is more difficult to find tenants in the first instance.
- The remedies are significantly better. It is relatively easy for a landlord to forfeit a commercial lease and take possession of the property if the tenant is in breach. Contrast this to a residential property, where the eviction process is often incredibly frustrating and time-consuming.
Buy-to-let has always been the obvious choice for individuals looking to dabble in the property market, but the smart money could now be in commercial property with a wave of new investment on its way.
For further information, please contact:
Shazan Miah, associate, real estate
T: 0121 234 0261
 These changes are to be phased in between 2017 and 2020.