Property is generally regarded as a good investment, whether it’s a single rental property to generate retirement income, or a portfolio of prime property producing significant yields on an annual basis.
But is property always a good investment, and are there times when investing in property is better or worse than the benchmark?
As with all investments, there are fluctuations in the property market. Valuations and asking prices go up and down, while rental yields can also vary over time.
In general, prices tend to trend upwards, but this is always offset by inflation elsewhere, from the cost of living to the price of materials and manhours when rental properties need repairs.
Of course not all investment properties are rented out, but much of the above also applies to capital gains made while living in a residential property, or the cost of refurbishment when buying a property to renovate and sell at a profit.
Ultimately, as with any investment, the important thing is to buy at a sensible price, try to time your investment right, and hold on to your assets until you are able to sell them for their full market value.
Poor timing is not catastrophic in itself, providing you can wait for the market to recover before you need to dispose of your portfolio. However, there are risks to be aware of, including negative equity on mortgaged properties, and loss of income during prolonged periods without tenants.
The UK has faced numerous challenges since the start of the millennium. In 2007-08, the subprime lending crisis and subsequent credit crunch plunged global economies into a deep recession, with chilling effects on property prices and transaction activity, as well as the availability of secured borrowing.
Multiple factors can combine to spell trouble for the prime property market too, such as in 2013 when we saw the market under threat due to a weaker pound, restricted banker bonuses and downgraded UK debt.
However, one person’s obstacle is another’s opportunity, and in a downturn there are often deals to be done if you are in a position to pay cash, or if you have your finances already in order to complete a property purchase without delay.
Economic recovery is hard to predict, so it’s important not only to have the finances to buy immediately, but also to be able to hold on to your investment for as long as it takes before you can sell at a profit.
Land Registry data shows that after UK property prices dipped in October 2007, it took until April 2014 for flats and maisonettes to recover their previous value. Terraced properties regained their former value by August 2014, followed by detached properties in September, while semi-detached homes did not pass their previous high until April of the following year.
The Coronavirus pandemic had a different effect. Following the experience of lockdown, many households made the decision to move to larger properties – perhaps driven by the uncertainty for the future, rather than subdued by it.
As a result, the Halifax House Price Index reported that larger properties increased in value by a sixth between March 2020 and the end of 2021, semi-detached and terraced homes added about 15% each to their value, and flats rose in price by about 9%.
Selling for the greatest profit is a combination of timing and gains – a prime property that adds significant value over a prolonged period of time may ultimately generate a far greater profit than a low-value property that rises rapidly in the short term.
Timing is rarely a ‘yes’ or ‘no’ question, but rather a complex patchwork pattern of domestic and international influences, availability of credit and buyer sentiment, all of which is mediated by the interplay between the owner-occupied vs. rental market and the yield of rents against purchase prices.
At Black Brick we continually monitor global markets and events to detect economic and political influences that could affect prime property prices in the UK market.
To benefit from these up-to-date insights, which may help you to make your own decisions regarding future investments in UK prime property, as well as whether to dispose of your existing portfolio in the current economic climate, please follow our monthly market update.
You can read the latest market update on our website, or download a PDF version to take with you on your favourite eReader – essential reading for the daily commute, with an archive of all our monthly updates reaching back as far as the first issue in 2007.
For more guidance on property investment, contact our expert team today.
We would be delighted to hear from you to discuss your own property requirements. For a non-obligatory consultation, please contact us.