Investment is a common tool for many of us to beat inflation. There are many types of investment available to us nowadays.
The traditional way of investing is to buy properties or stocks.
In recent times, we see an increasing trend of alternate investments such as fine wine, fine arts, agricultural (Hydropnics), land banking and carpark.In this article, we will mainly talk about carpark investing.
Here are 5 things you should know about it:
1) How Does It Work?
Car park investments are becoming very popular in the UK, and gradually to other parts of the world, as an alternative investment.
Investors purchase a block of property in a car park – called “car park spaces.” The investor then leases the space out to a tenant for a specified period of time. The tenant is almost always a property management company of some kind.
The property management company turns around and sub-leases the car parking space to customers on an annual basis.
The minimum capital outlay for a carpark investment is generally £25,000 for a 6-year lease. Investors can expect a return that ranges from 8% to 10%.
2) It Is An Unregulated Investment Product.
Unlike stock investing, Investment-linked insurance policies or bonds. Car Park investments are not regulated by the Monetary of Singapore (MAS).
As the investment is not regulated, investors that have any complaints or grievances against the investment will not be afforded any protection under the regulatory framework administered by MAS especially if the operators are based overseas.
If he has a complaint against an unregulated entity, he will also not be able to approach the Financial Industry Disputes Resolution Centre (FIDReC) for assistance.
Investors are left alone to take up legal cases with the company themselves which some cannot afford.
3) What Are The Risks Involved?
Carpark spaces seem to be an asset class as it is considered a property and deem a low risk type of investment. However, all investments carry a certain degree of risks.
Let us take a look at 3 potential risks involved when investing in a carpark space.
- Currency Risk
- Operator Risk
This provides assurance that the operator will not participate in questionable activities – such as clamping and towing away on private land where there is no lawful authority to do so, a practice which was banned in the UK in 2012.
- Economic Risk
- Regulation Risk
Government regulation such as the imposition of congestion charging in large inner city areas and initiatives to reduce parking demand by local authorities such as park and ride schemes also have the potential to shift carpark demand from certain areas.
4) Decreased Investment YieldThere is no guarantee in the investment yield as any return will be dependent on parking.
Any drops in demand for parking are also likely to have the undesired effect of reduction in occupancy and thereby a decrease in the yield from the investment.
5) ExitThe exit in retail parking space investments is generally for the investor to sell their asset on the open market. However, property assets are often illiquid in that it is unlikely that a parking space could be instantly sold to generate cash.
Investors can make use of websites to assist them with the buying and selling of retail car park spaces and some commercial real estate agents deal in the sale of car parks.
In conclusion, the investment market for car park spaces is presently very young and will take time for it to become mainstream.