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The rise in interest rates has fundamentally changed the situation on the housing market last year. But what investors may be even more concerned about is the deluge of new regulations for home rentals. This week Warned even the NVM for a disruption of the housing market, because many investors will sell their properties. How does this affect retail investors? And what are the alternatives to real estate?
At the beginning of this year, Ortec Finance published a comprehensive report on the impact of a series of new measures aimed at discouraging the letting of real estate. Real estate investors will have to deal with a lot of measures in the coming years. For example, the transfer tax will increase even further (from 8% to 10.4%) and more wealth tax will have to be paid, while the maximum rent for the middle segment will be reduced via the points system. Landlords also have to make investments in homes with a poor energy label to better insulate the home. In short, rental income goes down and costs go up. In such a way that, in some cases, investors are left with nothing.
This package of measures is therefore met with a lot of resistance. Not only wealthy real estate investors are affected by this, but also numerous small entrepreneurs who rent out a home as a supplementary income or as a pension. These new measures are not necessarily good news for tenants either. The measures are intended to make rents affordable and remove excesses from the market, but the result will be that the supply of affordable rental housing will decrease. Renting may become cheaper, but finding a rental property will only become more difficult.
Many investors will therefore start selling real estate in the coming months, as soon as existing leases expire and homes become available again. And we also see that with Holland Gold, because more and more customers decide to use (part of) the proceeds of the real estate to buy gold. After all, the precious metal is also a tangible asset, which also yields well in uncertain times. What are the pros and cons of buying gold with the proceeds of real estate? And what are the alternatives?
If you, as an investor, decide to sell real estate, you naturally want to reinvest the proceeds in a good way. And that can be done in different ways. If you still have a mortgage on your own home, it may be fiscally attractive to use the proceeds of an investment property to pay off the mortgage. This allows you to move assets from box 3 to box 1 and therefore pay less wealth tax. It also saves you interest charges that you would otherwise pay on your mortgage. Depending on your personal situation, this may be an attractive option. To do this, contact a wealth advisor or your bank.
As mentioned, we have also seen many customers buying gold with the proceeds of the real estate lately. This can also be a very interesting option, as it allows you to diversify your overall wealth distribution. Throughout history, gold has proven to be an effective tool to protect assets from currency depreciation and to reduce the risk of the investment portfolio. Unlike real estate, you have no counterparty risk with precious metals. Also, the precious metal performs well in times of economic and geopolitical turmoil. By converting part of your real estate portfolio to precious metals, you can therefore diversify your assets more.
The disadvantage of gold is that, unlike rented real estate, it does not generate a monthly stream of income. If this income is important to you, it may also be interesting to include shares of solid companies with a good dividend in your portfolio. This will allow you to generate a few percent per year in dividend income, which may even be more than the expected rental income after the introduction of the measures mentioned above. The disadvantage of this option is that shares can temporarily fall sharply in value during a crisis.
With a series of new measures, the government is trying to discourage investing in real estate, so that first-time buyers and those moving up the ladder have a better chance on the housing market. This policy is defensible in itself, but in a context of rising interest rates and already falling house prices, these measures hit extra hard. So much so that in a number of cases renting out is no longer profitable. The logical consequence of this is that investors are taking money out of real estate and looking for alternatives. Above, we have already mentioned three possible alternatives, all of which have their own advantages and disadvantages.
Paying off your own home is fiscally advantageous, but it does mean that your assets remain in real estate. This is despite the fact that there is a good chance that house prices will fall further in the near future. Buying gold is a good way to protect your assets from a financial or geopolitical crisis, but it doesn't generate any income. Over the past fifty years, gold has achieved an average return of almost 8% per year, but that is not the same as monthly income.
Individuals who rent out real estate to supplement their income or pension may also want to consider dividend stocks as an alternative source of income. A few percent returns per year are certainly achievable with a diversified portfolio. The best solution for you depends entirely on your personal circumstances.
Disclaimer: Holland Gold does not provide investment advice and this article should not be considered as such. Past performance is no guarantee of future results.
