Nothing stands still in the world of investing. What was attractive a decade ago may now be no longer favourable. Likewise, what seemed to be a risky growth opportunity in the past could become increasingly mainstream over time.
Those ideas could be particularly relevant when it comes to buy-to-let investing. It has been appealing for a number of decades for a variety of reasons. Among them is a favourable tax treatment, a shortage of new homes, and yields that have been far in excess of interest rates.
Now, though, the tide seems to be turning against buy-to-let. As such, it may be worth investing in another area over the coming years.
Buy-to-let challenges
As mentioned, buy-to-let investing could now be losing its appeal. Tax changes mean that there’s an additional 3% in stamp duty payable on the purchase of a new home. The government has also made changes to mortgage interest payments being offset against rental income, with this now not being possible for a number of landlords. And with interest rates forecast to rise over the medium term, the yields available on buy-to-let properties may be insufficient to cover mortgage payments over the coming years.
There are also other risks facing landlords. The end of tenancy fees could lead to estate agent management costs being increased. There’s also the prospect of a greater number of voids, or tenants finding it difficult to pay rent due to the UK economy’s uncertain future. This could severely reduce returns at a time when house price growth is forecast to slow even further.
Growth potential
In contrast, the investment prospects offered by emerging markets may be improving. The Chinese and Indian economies are expected to grow at rapid rates over the medium term. Due to their size, they could present significant investment opportunities for the FTSE 100 and FTSE 250 companies which operate in them.
This is particularly relevant for consumer goods stocks. Wage growth and personal wealth is expected to rise rapidly in both countries, and across the emerging world, over the coming years. As such, demand for a variety of goods and services could increase. This may include items such as personal care, beverages, banking services and a whole host of other sectors that are expected to become increasingly affordable for a wider range of individuals across all parts of the world over the long run.
Therefore, while the emerging market growth story is not especially new, now could be a good time to focus on it. A number of major companies now have strong footholds in the emerging world, and could be set to enjoy the benefits of significant investment over previous years.
Although buying properties may have been the right move 10 or 20 years ago, today changes to the industry and the opportunities available elsewhere mean that its opportunity cost may be high.
