The United Kingdom will introduce new rules for private pension provision from April 6, which will give pensioners greater freedom with regard to their ability to draw on their retirement assets. At present, 25 percent of a pension pot can be withdrawn tax-free when a person retires. This will remain so even after the new legislation comes into force, but the tax on the withdrawal of the remaining amount will be reduced.
These changes have the potential to increase home ownership transactions. However, the increase in sales is more likely to be due to pensioners selling larger properties and land in prime locations to buy something smaller and cheaper, according to Chestertons real estate company.
There are a number of possible reasons why someone would invest in real estate and not in pensions. For example, home ownership is considered less volatile and a relatively safe long-term investment compared to stocks. A regular monthly income can also be achieved by buying a rental apartment, and a certain amount of capital gains can be expected over time. In addition, a real estate investment is something that people tend to find less confusing than other forms of investment.
If the estimates of future demand prove to be accurate, it is likely that the number of retirees buying at least one investment property will almost double, possibly leading to an increase in property purchase and rental prices.
However, Nick Barnes, head of research at Chestertons, believes that the likelihood of pensioners investing in real estate is quite low. Stricter lender regulations could mean that many people may find it too difficult to finance an investment, and although buying a property with cash is an option, most pension pots amount to just £25,000, a rather modest amount when considering a purchase of this nature. Add to this the fact that many people have already withdrawn money from their pensions to put children or grandchildren on the property ladder and a significant increase in pensioners buying property seems less likely.
“The pension changes could trigger a significant increase in residential property transactions, but for most households it is unlikely to involve the purchase of investment property,” Barnes noted.