How To Invest Ethically In Property
On a more granular level, the ethical property investment market is continually growing and was assessed at £15 billion in the UK alone in 2015.
Bricks and mortar have always been a relatively safe bet when it comes to investment terms.
As long as you can ride out the peaks and troughs of the housing market you could find yourself with either guaranteed rent or a sizeable profit after sale.
However, the property market, like most markets, has seen the potential of ethical property investment.
From buy-to-let to commercial real estate, the number of investment opportunities in ethical property investment is enormous.
So what is an ethical property?
To put it loosely, ethical property investment is driven by the ethos of those who build the property, live in it or rent it.
All those involved in the developing ethical properties should be able to demonstrate that they had no reliance on funds or investments that were unethical.
Lending streams would need to be analysed to ensure that no funds were derived from, or catering to, the arms, alcohol, tobacco, pornography or gambling industries.
Equally, to occupy the building, it would be assumed that the inhabitant would be a charitable or non-profit organisation, a social enterprise, an ethical business, or an organisation of strong local benefit to the regeneration of an area.
Again, no unethical activities such as gambling, pornography, the consumption of alcohol or tobacco would be acceptable.
And of course ethical housing can be a source of social housing in its own right, where tenants, both private and in receipt of benefits, live by a doctrine of ethical considerations and abide by these rules as part of their contract.
The concept of doing ‘good’ through property is not a new one
On the investment side, ethical funds now have a track record of more than 30 years in the UK and independent research has concluded that ethical funds largely hold their own against conventional funds in terms of performance.
One engine driving the current market surge has been the increasing number of Shari’ah- law compliant mortgages and investments that have emerged from major banks such as Barclays, HSBC and Citibank.
With interest prohibited by Islamic finance, Muslims have had to seek other, more ethical investments, and the development of the ethical market has also piqued the interest of millennials too.
According to Schroders, interest in ethical investment varies by generation, with 86 per cent of millennials (defined as 18-35 year olds) citing its importance to them, followed by 79 per cent of Gen Xers (36 to 50 year olds) and 67 per cent of Baby Boomers (51-69 year olds).
And while the UK market continues to grow, it still lags behind most of the EU in terms of the amount of assets that flow into sustainable funds.
This can be mostly attributed to a fairly fragmented pensions market whereas in other countries such as Sweden and the Netherlands, large investing strategies allow them to push for ethical or social considerations more effectively.
Attention is certainly being focussed on ethical property investment right now.
Indeed, The Royal Institution of Chartered Surveyors recently launched a comprehensive guide (http://www.rics.org/uk/news/news-insight/press-releases/launch-of-uk- residential-real-estate-agency-rics-professional-statement-uk/) to what it calls “the responsibilities of residential property agents to ensure they are working to the highest ethical and professional standards.”
The guide is the sixth edition of the RICS’ famous Blue Book – formally called UK Residential Property Standards, and is a ‘bible’ for landlords across the country.
And earlier this month, a local authority announced it is launching a not-for-profit ‘ethical’ lettings agency in February with the intent to woo landlords with a promise of no fees for tenants.
Guildhall Residential Lettings has been set up by Northampton council and believes landlords will appreciate their thoughtful tenants, bound by an ethical code, which the council believes will reduce the amount of tenant movement and damage to properties.
That said, landlords will have to pay a hefty price for the peace of mind – a £500 set-up fee plus 12% management fees and the limit to only charge 76% of market value.
Still, the buzz around ethical property investment can only mean one thing – interest in it will increase and the number of funds will only grow.
Whether investing in an ethical property fund, or a managed buy-to-let portfolio, there are plenty of opportunities available to invest ethically in property.
And now is the time to do it.
Paul Connolly
Paul Connolly has been a journalist for more than 20 years, as a reporter and editor for Argus Media, Reuters, The Times, Associated Newspapers and The Guardian. He has covered Islamic Finance for Reuters in the 1990s. Paul has since helped launch three newspapers, as well as reported from Tokyo, Los Angeles and Stockholm.
