Pension funds lost trillions of pounds, dollars and Euros during the financial crisis, which originally erupted in dollars. Millions of UK citizens found out their pension funds had been severely depleted; that they would not only not get back what they had paid in, but would not get anywhere near as much as they would need to live on in their old age.
This couldn’t have come at a worse time, because it came when it was becoming apparent that there would soon be more people drawing the state pension than paying tax, and the debate was beginning to intensify over whether our government could sustain the state pension for all policy now that we are living longer.
What a nightmare. Enter SIPPs stage left. SIPP stands for Self Invested Personal Pension, and allows us to build our own retirement pension fund. We can add practically anything to a SIPP, including stocks and shares from the UK and around the world, and commercial property, but excluding holiday homes and residential property.
The fact that residential property is not allowed, at a time when buy to let investors are making huge yields is tragic, but while the talk of allowing residential investments in the future until it becomes more than just talk we need to work around it.
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Thankfully that is not so difficult. Resort and hotel properties are allowable under a SIPP, because although they are holiday (residential) properties, they are sold under the commercial rental management of the resort or hotel.
The number of people looking into the new SIPP model grew rapidly, as did the number of people who decided to go for it, and started to build their own investment funds. This helped the overseas property recovery massively in the last 12 – 18 months.
We all knew that we couldn’t rely on the state pension, and high street pension funds had done nothing bur let us done. But SIPP investors tend to be newbie investors, daunted by the risk of stocks and shares, and the variety of deals and structures in commercial property investment, but apartments and villas in a resort, or apartments and rooms in hotels or apart-hotels are an ideal option.
To be allowable under a SIPP a property will be sold under rental management, so this makes them ideal investments. The best investments are those under established hotel or resort brands that can ensure rental occupancy of the resort all year round, and you should also be looking for deals that pool returns on similar sized units. The popularity of SIPP investments has boosted sales of allowable resort properties massively, and developments have increasingly been sold off in structures so as to make them appealing to such investors.
The Tortuga Beach and Spa Resort on Sal Island Cape Verde stands out in particular, because sales at the resort were near-completely crippled by the financial crisis. But the resort opened earlier this year completely sold out, with a heavy contingent of SIPP buyers. In fact, according to a spokesperson for Melia resort group 94% of buyers were British, and most of them bought as part of a SIPP. The next Melia resort on the island of over 1000 units is now also sold out, and again SIPP investors were the predominant buyers.
The number of properties on the international market that are allowable as part of a SIPP is still relatively small, but there does seem to be intense demand for the best deals from SIPP investors and this option is greatly helping the recovery of some hard hit locations.