Asset backed and government guaranteed

Imagine being offered a return on an investment that was asset backed and government guaranteed. Imagine it offered 6% a year. Given savings (which up to a certain amount are government guaranteed) offer zero interest, you would bite your hand off for such an investment.

Alas they don’t exist.

Some could argue investing in commercial property, with high credit rated tenants on long leases can offer these sort of returns with the benefit of capital being attached to the building. Real Estate is not as volatile as other investments (it’s more like a tortoise than a hare) and tenants who fall into arrears can be taken to court and companies wound up. Not government guaranteed, but a “safe as bricks” investment.

Covid-19

Covid-19 has changed all this. Many corporate tenants are down scaling and moving as many workers as possible into the zero contract world and home working. Many tenants are now refusing to pay all their rents as they cannot access their rented space. Real Estate prices are crumbling and Landlords are struggling to manage the situation.

Governments may have offered loans and freebies to keep corporates alive, but tenants now rule the court. Landlords are petrified.

HMOs and the PRS

Meanwhile, in the land of HMOs and PRS, one would have thought Covid-19 would have caused carnage too. The complete reverse is the case. Tenants need somewhere to live and a tenant with a bad rating will struggle to find somewhere to live. Tenants will pay their rent at all cost and following covid-19, with the threat of social unrest, rents have been guaranteed thanks to the magic money tree of furloughing.

If we said a house rented to key workers offered 8%; and your capital was secured against the property and could be seen on companies house; and the rents would always cover the expected return; and the rents were government backed, wouldn’t you bite your hand off to access such an investment?

PRS is no longer seen as an amateur game. It is being institutionalized which brings along better checks and balances and adherence to regulations. Big funds are moving out of unsecure commercial property into PRS. Not only is this partly due to government backing of rents but renting is the new normal for millennials and beyond. Being free to move where your work takes you (no need to be near a corporate office) means renting beats ownership hands down.

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