Beyond bricks and mortar: rethinking property as an investment asset

Property has long been seen as a reliable, tangible investment asset. But while it can play a role in a portfolio, it also comes with limitations. Here we compare property to other investment options across key cornerstones of successful investing: liquidity, risk and return, diversification and tax efficiency, as well as maintenance costs and effort.

Liquidity

Property is inherently illiquid. Selling can take months. If you need to exit quickly, you may be forced to accept a lower price. You also cannot sell part of a property; it’s an all-or-nothing decision.

In contrast, funds and other market investments can usually be sold quickly. You can withdraw only what you need, giving far greater flexibility as your circumstances or goals change.

Risk and returns

Property can deliver long-term growth and rental income, but prices can stagnate or fall, and performance often depends on timing and location.

It’s also important to look beyond headline gains. Once you factor in costs, periods without tenants, and financing, actual returns can be significantly lower than expected.

Market-based investments, while subject to some volatility, offer greater flexibility. Portfolios can be adjusted over time, allowing investors to respond to changing conditions rather than being tied to a single asset. You can choose equity and bond funds where the managers proactively fine-tune the portfolio according to performance, market conditions, and where they see risks or opportunities.

Diversification

It is important not to be overexposed to any asset, including property. A good portfolio spreads risk across different asset types, regions and market sectors to limit exposure in any one area.

Property investors often lack this flexibility. Owning two or more properties may make you overweight in this one asset class, especially if you don’t own many equity or bond holdings.  And given the high initial outlay, buying a range of real estate across regions and sectors is out of reach for most investors.

In contrast, investment funds can provide diversification across a wide range of assets, geographies and industries. This helps smooth returns and reduces reliance on any one area of the market.

For expatriates, diversification can also extend to currency. Many investment structures allow holdings in multiple currencies, rather than tying wealth to a single property market or exchange rate.

Ongoing costs, efforts and stress

Property investment comes with a range of ongoing expenses that can erode returns: maintenance and repairs; letting agent fees; insurance and compliance costs; service charges or ground rent; mortgage interest, and periods without rental income

These costs are often unpredictable and can quickly accumulate, particularly with older properties and changing regulations, such as the UK’s new Energy Performance Certification. By comparison, funds typically have transparent, predictable fees, and far fewer unexpected outlays.

Property is rarely a passive investment. Managing tenants, handling repairs, complying with regulations and dealing with vacancies require significant time and attention. There are also emotional and financial pressures, from late rent payments to urgent maintenance issues, which can make property ownership more demanding than many investors anticipate. And the UK’s new Renters’ Rights Act will make it much harder for landlords to evict or refuse tenants.

Investment funds are generally more straightforward to hold and manage, requiring little day-to-day involvement.

Tax efficiency

Tax is an often-underestimated factor when assessing property as an investment. In the UK, the tax landscape for property investors has become more complex and less favourable over recent years. Landlords now face:

Higher income tax, capital gains tax and stamp duty liabilities.

Restrictions on mortgage interest relief.

The loss of favourable treatment for furnished holiday lets.

Inheritance tax on all UK residential property, regardless of ownership structure.

More HMRC scrutiny, compliance and administrative burden.

Non-residents are liable for UK tax on rental income and capital gains on disposal, and may also be assessed in their country of residence.

In Portugal, an annual tax is applied to Portuguese property exceeding €600,000 per owner.

The best approach for you

Property can still play a role in a long-term strategy. However, it is often less flexible, more concentrated and more hands-on than capital investments. For investors seeking liquidity, diversification and ease of management, a broader investment approach may offer a more balanced and adaptable solution.

Consider all the assets you already own, including your home, to determine the best approach. There may be compliant opportunities in Portugal that offer much better tax advantages and returns than property. Ultimately, you should aim for a balanced portfolio that will suit your unique aims and circumstances, today and tomorrow.

Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

By Christopher Moore, Partner, Blevins Franks