PBSA investment has recently been receiving attention as a lucrative alternative to traditional retirement pot forms. This has taken on added significance since the government’s budget proposals were unveiled, freeing up pension funds that can in the future be more easily invested elsewhere.
- The future still looks bleak for savers
- An alternative investment strategy
- Effortless nature of student property investments
- A high yielding opportunity for retirees
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For the many retired men and women who struggle to survive on their state pensions and under-performing savings accounts (including ISAs), investing in Purpose Built Student Accommodation (PBSA) could be the answer.
Here are some of the typical savings options available to all UK residents.
1.25% AER Instant access – Bank of India (variable interest rate)
1.75% AER Fixed-rate savings account – Sainsbury’s Bank 2-year fixed rate
2% AER Cash ISA – Halifax 5 year fixed ISA – 2% AER
6% AER Fixed Bonds – Wellesley 5 year Fixed Bonds account
Figures courtesy of http://www.money.co.uk/savings-accounts/instant-access-savings.htm
The future still looks bleak for savers
It’s a bleak situation for men and women who are already in retirement, and for those approaching retirement. Taking ISAs as an example, some experts are predicting that they won’t fully recover their performance rates (which reached as high as 5% in 2007) until 2025.
As far as the Bank of England is concerned, predictions are that the base rate won’t exceed more than 1.5% by the time we get to 2020. After that, the new expected “norm” is likely to be pegged somewhere between 2% and 3%. Even if this is achieved, it’s still a far cry from the 5% norm before the last major recession kicked in.
Of equal concern is the fact that, according to Chris Williams, chief of Wealth Horizon, when the base rate does rise, it is unlikely to be passed on by either banks or building societies. This means it could be 2025 before savers see a significant improvement on savings interest rates in real terms.
Another option is investing in stocks and shares ISAs. The problem here, however, is that although they can offer better returns, the stock market is potentially volatile. Losing investment capital once retired is not something many people can afford to let happen.
An alternative investment strategy
With all investors (not just retirees) wanting to ensure that their investments are, above all else, safe, and that they offer something significantly better than the interest currently being paid out on most forms of savings, investing in PBSA is an interesting option; property investing made easy.
Instead of tying up savings in underperforming ISAs that yield less than 1.65%, investors could be reaping fixed NET yields of 10% per annum. This rate in many instances is offered over a 10-year period.
The cost of a top-quality PBSA investment is in the region of £60,000 – £70,000, with options at less than £50,000 also available. This size of investment will secure ownership of a luxury-style PBSA that is built to the highest standards and includes quality fixtures and fittings.
With the costs of tuition fees being as high as they now are (the average is around £9,000 per annum), students expect more from their university experience. More students (particularly foreign students studying here in the UK) expect to stay in high-end purpose built accommodation, rather than being squeezed into shared houses (HMOs). They are willing to pay the going rate for first-class accommodation, which will enhance their study prospects.
Effortless nature of student property investments
Most investors prefer hassle-free investments. This is something that would also appeal to pensioners and retirees. PBSA properties are managed by professional property management companies. These companies manage all of the apartments in a given PBSA property. They are usually on-site 24/7 and their scope of work includes:
- Collecting rental payments
- Ensuring full occupancy
- Dealing with any on-site problems that arise
- Carrying out regular maintenance
PBSA investors can simply sit back and, with no involvement in day-to-day management issues, watch the money coming into their account. They also watch their investments appreciating in value, thanks to the original high build quality and on-going regular maintenance, which keeps the properties in pristine condition.
The value of PBSA investments is maintained at the top end of the market sector as demand continues to grow against a background of massive undersupply. It’s the law of supply and demand in action.
Entering into the PBSA sector is made easy for new investors by the fact that the investment packages on offer often come complete with assistance in legal aspects of property purchasing, including the enactment of due diligence.
Some investors need to have quick access to the capital they have invested to meet unforeseen circumstances. This is one reason that many people avoid sinking savings into accounts for long fixed periods of time. Thanks to current demand outstripping supply, most resales of PBSA investments are completed within two to four weeks.
A high yielding opportunity for retirees
PBSA is now considered to be a world-class asset, and one that is ideal for those planning for their future, looking for a regular income and growing their capital with the minimum of risk. When all other sectors in the world economy have floundered in difficult conditions, PBSA is one of the few market sectors that has not only stood firm, but has flourished.
The fact that PBSAs are offered for sale off-plan (prior to completion) means that investors can secure PBSA below market value, offering an even better return on the original investment. When researching PBSA opportunities, establishing that the developer is NHBC approved assures the investor that the finished build quality will meet expectations.
As an alternative investment opportunity for retirees, and those planning to retire in the near future, the fixed income and hassle-free investment ownership, plus an appreciating asset, makes PBSA a very interesting proposition.