Despite a certain amount of turbulence still being felt across the property sector and wider financial markets, less competition will allow business owners to explore property investment opportunities, according to new research from Finbri.
UK business owners are in favour of investing in property in 2023, with 84.10% believing now is a good time to invest in residential property, 80.43% in commercial property and 80.31% in semi-commercial property. The majority of business owners believe now is the time to invest in property with the most favourable option being residential property.
Why are business owners looking to invest in property?
Investing in property offers a number of benefits. Firstly, it's been a proven method to build wealth and achieve financial security. Property investments provide a regular income stream in the form of rental income, which can be used to pay off any outstanding mortgages. Property investments can be used to diversify an investment portfolio, spreading the risk of other asset classes.
Equity in property: A property's equity can be relatively easily accessed via refinancing should a business require a fast injection of cash.
Tax deductions: By investing in commercial property, businesses can save money on rent and enjoy potential tax deductions. Rental income from properties owned by a limited company is taxed at the current corporation tax rate, which is typically about half of a personal tax rate.
Potential for capital growth: Property values will likely appreciate over the long term and when property values increase, investors benefit from those gains.
The findings of Finbri's survey indicate that UK business owners are highly optimistic about investing in property over the next 12 months.
What are the risks involved in investing in property?
While there are many potential benefits to investing in property, it's important to remember that there are also many associated risks. The most common risk is associated with the fluctuating values of properties, as they can go up or down, sometimes without warning.
Additionally, if the rental income from a property fails to meet mortgage repayments, businesses could be left with a financial shortfall. The latter risk is being faced by many current private landlords in the market as a result of the rise in interest rates.
It's also important to bear in mind that investing in property can involve significant upfront costs, such as stamp duty and legal fees - many of which can be avoided if done through a limited liability company.
Are businesses cutting back on investment?
The UK is made up of a wide variety of businesses with 5.47 million small businesses and 35,900 medium-sized businesses - making up 99.9% of all businesses according to Gov.uk. Yet large global corporations with vast funding are cutting back on investment, especially in employment numbers.
For example, Amazon experienced a surge in revenue during the pandemic while consumers were confined to their homes. However, as customers cut back on their spending as a result of the crisis in the cost of living, sales have decreased. As a result, Amazon is set to cut a further 9,000 jobs in an attempt to cut costs, following 18,000 jobs that were axed in January.
Other businesses, like Google and Facebook owner Meta, have been debating how to strike a balance between cost-cutting initiatives and the need to maintain competitiveness. The company Meta, which also owns Instagram and WhatsApp, revealed intentions to lay off 10,000 employees in late March.
Whilst economic stagnation has 73.78% of business owners Strongly concerned (42.23%) or Concerned (31.55%), in addition to business owners' positive outlook on property investment, Finbri's survey has discovered UK business owners remain positive about investment possibilities over the next 12 months. 81.85% of survey respondents said their number of employees would Increase (63.46%) or Significantly increase (18.39%) over the next year. Whilst 77.82% believe there will be an increase (46.50%) or significant increase (31.32%) in asset investment over the forthcoming year.
Should businesses invest in property?
Investing in property can provide a number of benefits such as building wealth and achieving financial security, as well as providing a regular income. Property investment can be a worthwhile venture for UK business owners looking to build a secure financial future.
However, it's important to remember that investing in property also comes with some associated risks, such as fluctuating property values, increasing rates, potential financial shortfalls and upfront costs.
Despite concerns about the UK economy and economic stagnation, business owners show strong intent to invest in residential, commercial and semi-commercial property in 2023, UK business owners are overwhelmingly in favour of investing in property in 2023.
Stephen Clark from Finbri says: “Investing in property has been a go-to for landlord entrepreneurs and business owners alike for two decades. The uplift in capital growth has created a lot of wealth, so it comes as no surprise companies continue to seek out these opportunities. Businesses with a free high cash flow appear to be keen to take advantage of current market conditions - possibly where those who are now exposed to higher interest rates are looking to sell their property.”