Happy New Year? Not for investors. With stock markets in the red and commodities at rock bottom, where should investors turn?
Despite all the tax and regulatory changes in the pipeline, the answer seems to be, once again, bricks and mortar.
Residential property investment in England and Wales has massively outperformed other major asset classes over the past two decades, according to a new property index launched today.
The Property Partner Residential Market Index presents the most accurate picture yet of the performance of residential property as an asset class, net of operating costs and capital improvement expenditure.
The Index shows that £100 invested in London’s property market twenty years ago would be worth £1195 today. This compares to:
â— £728 for property in the South East
â— £608 for property across England and Wales
â— £473 for the FTSE All Share index
â— £299 for gold
â— £224 for cash savings
Residential property investment in England and Wales has delivered average annual total returns of 9.34% over the last 20 years, far outperforming the other asset classes. The make-up of these total returns differs across regions with London offering lower income and higher capital growth versus regions outside London where the balance is more even or the opposite is true.
The Index starkly reveals how the huge increase in property prices in London and the South East has squeezed yields for investors in these regions. While buy-to-let landlords in the North East can expect to earn a net annual income of 4% on their properties, the average net yield in London has fallen consistently over the years to an average of 2.7% in the year to November 2015.
The perfect hedge
The new analysis reveals that, over 20 years, residential property has represented a lower risk to investors, even when compared to gold, traditionally considered to be a safe haven.
In fact, the supply and demand drivers of the housing market mean that residential property is not closely correlated to the performance cycles of other assets, in particular equities, fixed interest and commercial property. This makes residential property a very strong hedge against wider volatility in the economy.
Take the Global Financial Crisis: from its peak in February 2008 to its trough in April 2009, residential property in England and Wales fell 14%. This compares favourably to the FTSE All Share total returns index which peaked in February 2007 and bottomed out in February 2009, falling 41%. Although gold served as a safe haven during the Global Financial Crisis in the longer term this asset class significantly underperforms residential property.
Property Partner’s, CEO, Daniel Gandesha, said: “Residential property investment has long been considered attractive, but there has been a lack of objective and accurate data taking into account the typical costs associated with the asset class. The Property Partner Residential Market Index brings insight and transparency to the residential property asset class, enabling investors to both track the wider market and compare its ongoing performance relative to other asset classes.”
Until now, only a fortunate minority have been able to access the benefits of property investment due to the prohibitively high costs of entry.
But our crowdfunding platform is, for the first time, opening up the asset class to investors of all sizes; delivering innovation into a previously antiquated sector and allowing anyone to invest in better buy to let at the click of a button.”