With the value of property rising in key markets across Ireland, the UK and the US, the memory of the property collapse is slowly becoming a distant memory.
Here in Ireland, the introduction of very generous capital gains incentives provided a major boost to invest in the Irish property market at a time when values were still falling. Those incentives ended in 2014.
Across much of the western world, restrictive lending guidelines are now forcing would-be first time buyers to rent for longer as they save for higher deposits which have provided a major boost to rental yields.
Across the US, a country with a long history of investing in a wide variety of asset classes, including equities, bonds, alternatives and more recently, ETF’s, it is property that continues to have the highest appeal.
More than 1 in 4 Americans (27 percent) said property was the best investment for money which they would not need for at least a decade, according to a new Bankrate.com survey of 1,000 investors. Cash came in second with 23 percent of investors, only 17 percent said the stock market is their preferred place for long-term money and just 5 percent said they would put their long-term money in bonds.
Just this week, the drop in value of gold has shaken the confidence of investors in that sector. But emerging markets have also come into the spotlight. Blackwater Associates, the world’s largest hedge fund has now flipped its view on China, from positive to negative. China’s stock markets have been battered in recent weeks where Shanghai’s main index lost a third of its value prompting a growing chorus of China-watchers to warn against investing there.
Stung by minimal returns on cash and concerns about stock, bond and commodity prices, property markets are again proving highly attractive, especially to those with funding.
Firstly, capital appreciation potential is still very strong.
Second, rental yields are healthy. With more would-be first time buyers forced to sit on the property sidelines and save for higher deposits, this has pushed up rents in major urban centres which in turn boost the attractiveness of the property sector.
Third, property supply is a major problem in many markets. Following years of significant under-investment, there are substantial shortages of suitable residential properties across many urban centres which means that property prices are likely to continue rising.
Putting large chunks of one’s personal wealth into this illiquid investment class has its detractors but from a long term investment strategy, it is proving difficult to beat.
Less emotional stress
In a conversation with an attendee at a recent personal finance clinic I was giving, they summed up their investment strategy most succinctly: “I know the investment folks tell me to spread the risk but for me, I like to stand in the investment that I make, I like to see it, touch it and know it. With stocks and bonds, every day it’s up, it’s down and there are all these so-called experts scaring the wits out of me and the daily media frenzy, well…it’s so emotionally draining. With property, you just buy it and its there for the long-term and over the long-term, it’s value does grow!”
Nothing more to say!
Frank Conway is a Qualified Financial Advisor and author of Cents & Sensibility, a financial guide.