Coronavirus - we're here to help
From how to access your account online, scam awareness, your wellbeing and our community we're here to help.

Skip to main content
  • Register
  • Help
  • Contact us
  • Log in to HL Account

Alternative investments: Spotlight on property

Jonathon Curtis, Investment Analyst, looks at the pros and cons of investing in property and examines the role it can play in a portfolio.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

In the second of this four-part series we’ll lift the lid on investing in property. Please note that this article is not personal advice and if you’re unsure that an investment is right for you, seek advice. All investments fall as well as rise in value, so you could get back less than you invest. Yields are variable, not guaranteed, nor a reliable indicator of future income.

Read part one: commodities

Much more than buy-to-let

Property is a giant asset class. So much so that it’s sometimes called the fourth asset class, after shares, bonds and cash. Many people’s first thought about investing in property is buy-to-let. Inspired by decades of house price growth and TV programmes such as Homes Under The Hammer, there are around 2.5 million buy-to-let investors in the UK. But commercial property also forms a large part of the investment property sector, and performance is driven by far more factors than the residential market.

Commercial property is usually divided into three parts: industrial, office and retail. Industrial properties include warehouses, factories and distribution centres. Offices are normally either city centre blocks or out-of-town office parks. Retail includes high-street shops and shopping malls. There is also an alternative property sector, which includes hospitals and doctors surgeries, retirement communities, student accommodation and leisure centres.

Aside from bricks and mortar, there are also opportunities to invest in land with development potential, and even farms and forests, which could provide investors with some potentially useful tax benefits. Property is a diverse as well as enormous sector. Remember that tax rules change and benefits depend on individual circumstances.

Should I invest in property?

Investing in property is popular. The basic concept is easy to understand and many investors are reassured by the physical nature of bricks and mortar. Property often performs differently to the stock market so could provide some useful diversification to a portfolio for those who are happy to accept the risks. It also gives investors the potential for capital growth and healthy yields from the rent tenants pay.

There are of course downsides too. Unlike buying and selling shares and bonds, physical property transactions can be lengthy, expensive and downright stressful. And once a property has been let there are often lots of costs associated with maintenance and repair, taxes, insurance, agent fees, not to mention the potential for bad tenants and times when the property is empty.

UK property investment sectors vs the UK stock market over 10 years

Past performance isn’t a guide to the future. Source: Lipper IM to 31/12/2019.

How to invest

There are some convenient ways to invest in property that don’t involve buying any bricks and mortar yourself. One option is funds that invest in physical property. There are generally two types: open-ended and closed-ended.

Open-ended ones operate like a normal fund and fall under the IA UK Direct Property sector. We don’t think they’re the best way to invest though as liquidity can be a big issue. If lots of investors become nervous and ask for their money back, a property fund manager may not be able to sell properties quickly enough to raise the cash. In extreme cases they could temporarily ‘gate’ the fund, stopping investors getting their money, giving the manager more time to sell. This happened to some funds in December 2019, so it’s a real risk to consider.

We prefer closed-ended funds. The best-known are real estate investment trusts (REITs). They operate like shares. The price goes up and down as investors buy and sell, but the money managers have to invest remains the same. That means they can focus on managing the portfolio without worrying about how much investor money is coming in or going out.

You could also invest in shares of property sector companies. Examples include housebuilders, estate agents, home improvement suppliers and storage companies. There are also funds available that invest in these companies, which form the IA Property Other sector. Property sector companies listed on the stock market might not offer the same level of diversification compared with investing in physical property though.

Read our latest Property sector review


Search for Real Estate Investment Trusts (REITs)


Search for property funds

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Editor's choice – our weekly email

Sign up to receive the week's top investment stories from Hargreaves Lansdown. Including:

  • Latest comment on economies and markets
  • Expert investment research
  • Financial planning tips
Sign up

Related articles

Category: Funds

Japan stock markets and funds quarterly review – a new era on the horizon?

We look at how the coronavirus crisis has impacted the Japanese economy, how Japanese funds have coped, and share our outlook for the future.

Josef Licsauer

25 Sep 2020 min read

Category: Essentials

How to make family saving fun

Hannah Duncan looks at seven tips to get your children to save money.

Hannah Duncan

22 Sep 2020 6 min read

Category: Active Savings

What the NS&I interest rate cut means for savers

We look at the potential impact on the savings market as NS&I announce a cut to their market leading savings rates.

Ryan Kenny

21 Sep 2020 3 min read

Category: Investment Trusts

Standard Life UK Smaller Companies Trust: September 2020 update

Senior Investment Analyst Kate Marshall shares our analysis on the manager, process, culture, cost and performance of Standard Life UK Smaller Companies Trust.

Kate Marshall

21 Sep 2020 min read