You can invest in property in different ways. Find out more in this guide.
- When might property investments be right for you?
- Indirect property investment options
- Buying shares in Real Estate Investment Trusts (REITs)
- Buying shares in listed property companies
- Investing in land banking schemes
When might property investments be right for you?
Indirect property investment might be for you, if you:
- Are ready to commit to a long-term investment.
- Want to invest in property markets without having to buy a house or flat yourself.
- Understand that the property market can fall as well as rise and that the value of your investment can go up or down.
Indirect property investment options
There are three main types of indirect property investments:
- Land banking schemes
- Shares in property companies
- Real estate investment trusts (REITs)
Other ways to indirectly invest in property include:
- Property funds,
- Property investment trusts,
- Property unit trusts and OEICs, and
- Property authorised investment funds.
Buying shares in Real Estate Investment Trusts (REITs)
- A REIT is a property investment company listed on a stock exchange that owns and manages property on behalf of shareholders.
- REITs can invest in commercial property, residential property or both.
- REITs have a special tax treatment to align them more closely with the tax arrangements for direct investment in property.
- You invest by buying shares in the REIT. See our guide to Investing in shares to find out more.
- A REIT has two separate elements for tax purposes: a ring-fenced property letting business which is exempt from corporation tax; and non-ring-fenced activities like property management services which is not.
- If the REIT you invest in does well, you will receive a distribution of the profits.
- Payments from the tax-exempt element are treated as UK property income for the investor and are paid net of basic rate tax. Non-taxpayers can re-claim this and ISA investors receive payments gross.
- Payments from the non-exempt element are treated the same as any UK dividend and paid with a tax credit.
Pros
- Because a REIT pays less corporation tax they might be able to return more profit to investors.
- You can hold REIT shares in a tax-free ISA, up to your annual limit – see our guide on ISAs and other tax efficient ways to save or invest.
Cons
- The value of your investment can go down as well as up and you might get back less than you invested.
- REITs are not subject to direct supervision by the Financial Conduct Authority (FCA). If you invest in a REIT, you will not be able to go to the Financial Ombudsman Service to make a complaint or claim compensation from the Financial Services Compensation Scheme (FSCS) if the company goes bust.
Buying shares in listed property companies
- Property investment companies listed on a stock exchange are companies that might own, develop and manage property on behalf of shareholders. They are either too small for REIT status or choose not to operate as a REIT.
- You invest by buying shares in the company. See our guide to Investing in shares to find out more.
- If the property company you invest in does well, you’ll earn a dividend – a share of the profits. You can also make money if the share price goes up, letting you sell for a higher price than you originally bought at.
Pros
- Some companies invest in specialist property types, giving you access to markets that are normally hard to invest in.
- You can hold shares in a tax-free ISA, up to your annual limit. See our guide on ISAs and other tax efficient ways to save and invest.
Cons
- The value of your investment can go down as well as up and you might get back less than you invested.
- Listed property companies are not subject to direct supervision by the Financial Conduct Authority (FCA) so you can’t go to the Financial Ombudsman Service to make a complaint or claim compensation from the Financial Services Compensation Scheme (FSCS) if the company goes bust.
Investing in land banking schemes
Warning!
Most land banking schemes are not authorised by the Financial Conduct Authority.
With land banking, you buy a plot of land in an area that has not been given permission for development.
The people selling plots often claim that the value of the land will jump once planning permission is granted.
However, the land could be protected and might never gain planning permission. Be aware that these schemes are high risk and could be scams.
Before buying land, contact the area’s local council to find out if the land is likely to be released for development.
If a land banking investment scheme claims to be structured as a collective or pooled investment, it must be registered with the Financial Conduct Authority (FCA).
Pros
- If the scheme is genuine and the land increases in value, you might be able to sell the plot for more than you paid.
- You can hold shares in a tax-free ISA, up to your annual limit – see our guide on ISAs and other tax efficient ways to save and invest.
Cons
- High risk of fraud.
- Some companies will tell you that the land can be built upon or has planning permission, but you might be buying land that can’t be developed, either because it’s protected for its beauty or off-limits due to industrial pollution.
- Land banking schemes not authorised by the FCA are not subject to any rules or regulation on the fair treatment of customers or the handling of client’s money.
- If you invest through an unauthorised company and things go wrong you can’t go to the Financial Ombudsman Service to make a complaint or claim compensation from the Financial Services Compensation Scheme (FSCS).
This article is provided by the Money Advice Service.
