Everything you need to know about the property schemes that allow you to make a profit and a positive change.
What is ethical property investing?
Ethical property investing is the practice of considering environmental, social and community factors when putting money into property.
“Ethical property schemes encompass a range of options, from environmentally sustainable developments to initiatives focused on affordable housing and community regeneration,” says Sarah Walker, founder of Lessons In Lettings.
“Some examples include investing in energy-efficient buildings, supporting social housing projects, or backing developments that prioritise green spaces and sustainable materials.”
This type of investment is becoming increasingly popular as investors look to balance their moral conscience along with their bank balance.
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“With increased awareness and concerns about sustainability, investors are more aware of the impact of their investments and are seeking out opportunities that align with their values,” says Michelle Niziol, owner of IMS Property Group.
“Demand from millennial and Gen Z investors are driving more ethical property investments, and there are huge changes in government policies that are prioritising sustainability initiatives and shaping investment landscapes, so there are increased opportunities and tenders within this area that are becoming more attractive to property investors.”
What are the pros?
As well as the obvious pro of bringing a positive change — whether environmental or social — there are several other advantages.
“Ethical investments may be resistant to regulatory changes,” says Niziol. “For example, properties that meet ethical standards have the potential to withstand regulatory changes related to environmental protection, energy efficiency standards and building codes.”
These schemes are also more resilient when it comes to market fluctuations and short-term changes, as they’re characterised by steady, long-term growth, making them less risky in the long run.
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“Ethical investing prioritises long-term impact alongside financial returns, making it a valuable option for investors seeking to make a difference while growing their wealth,” says Tom Condon, property manager at The Property Buying Company.
Another big advantage is diversification. “By allocating funds to projects with different risk profiles and return potentials, [investors] can enhance portfolio resilience and potentially improve overall performance,” adds Walker.
“Ethical property investments also stand out in the market and are often more attractive to tenants and buyers. Ethical properties often see lower vacancy rates, higher rental incomes and demand,” flags Niziol.
As well as the tangible and financial benefits, ethical property investing never does your image any harm.
“Many investors may recognise the value of being associated with ethical investments in terms of their personal and professional reputation,” says Walker. “Investing in projects that benefit society and the environment can enhance their image as socially responsible investors and contribute to building trust with stakeholders.”
What are the cons?
There are disadvantages to be aware of too, and the main one is that it’s likely to take time for your investment to come to fruition.
“It’s essential to acknowledge potential cons, such as the possibility of lower short-term returns compared to traditional investments and the need for thorough due diligence to ensure the ethical integrity of the investment,” says Walker.
As well as waiting for your investments to materialise, it’s likely you’ll have to pay out more at the beginning than with a traditional investment.
“Ethical property investing can require higher up-front costs, including sustainable design costs, specific accreditation, or ratings. There is also limited availability, therefore greater competition to invest,” says Niziol.
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Condon also flags how important it is to do your homework ahead of investing and ensure that the property is going to align with the values you have in mind. “Thorough research and professional guidance are crucial, as defining ‘ethical’ and understanding individual scheme goals are essential for informed decisions.”
What returns can you expect?
While no one is debating their positive impact, how do ethical property investments compare to traditional schemes when it comes to profits?
“While initial returns might not always match those of traditional investments, the potential for sustainable growth and societal benefits can make them appealing in the long run,” says Walker.
“Reap, for example, offers a higher return the more you invest…you’d get a 3% return on investment of £15,000 to £24,999, 4% for £25,000 to £49,999, and 5% on £50,000 or more.”
But like all property investments, ethical scheme returns vary and there are many factors involved. Like all investments, their value might go down as well as up.
What are some examples of ethical property initiatives?
HomeNow is a professional landlord scheme that focuses on sharing value with tenants.
After five years, the scheme gives tenants a third of the increased value of the home with the idea that they use this as a deposit towards purchasing the property themselves. Investors benefit from five years of rent as well as a two-thirds share in the property increase.
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“Based on our current model we are forecasting a return of 16% to investors,” says Gareth Ship, COO of HomeNow, although he caveats this: “Please note forecasts are not a reliable indicator of future results and capital is at risk.”
REAP (Real Estate Annuity Plan)
REAP describes itself as: “A sustainable and ethical method to receive a stable monthly income from property and provides an affordable accommodation to people who need it most.”
“The Ethical Property Company offers opportunities for individuals to invest in properties that support social and environmental initiatives, including community centres, co-working spaces, and charity offices,” says Walker.
This scheme offers opportunities for those wanting to invest in commercial and residential developments with a sustainable and socially responsible focus.
Other schemes include Green Finance Initiatives, BREEAM (Building Research Establishment Environmental Assessment Method) and GRESB (Global Real Estate Sustainability Benchmark).
