Property as an Asset Class
Is all that glitters really gold? Gary Powell, IP Global’s Director of Sales, UK, explains how bricks and mortar is the shiny new jewel in the asset-class crown.
More and more investors are seeing property as one of the most stable investment asset classes available, and for good reason.
Take the London residential apartment market. Its recent record compares very well against other asset classes, for instance the increasingly popular gold market.
At the start of 2013, gold was priced around GBP1,050 per ounce. At the same time, we launched a project in the City Fringe area of London priced around GBP800 per square foot – GBP405,000, for a one-bedroom apartment.
A year later, independent assessments valued this property at a very impressive GBP485,000 – growth of 19.8%. Selling then would have banked a profit of GBP85,000 in just 12 months.
Compare this to gold, which in January 2014 was priced around GBP750 per ounce, a one-year decline of almost 30%.
But that’s not even the whole story. Property investors can leverage their investment by securing a mortgage to fund its purchase. In London, banks will lend up to 70% to foreign property investors, so for a GBP405,000 purchase, the total cash investment is actually just GBP121,500.
That transforms our potential return on investment from an impressive 19.2% to an outstanding 64.1% in a single year.
And that’s before accounting for securing a tenant whose rent would basically cover all mortgage payments.
When choosing property over alternative asset classes, investors need to carefully consider their eventual exit strategy. Most stocks, bonds and shares are ‘liquid assets’ – investments from which you can easily exit at any time. This isn’t so simple with property, as you’ll need to find a new buyer when the time comes to sell.
In an upward market where prices are increasing, this is generally a simple process. But in a downward market where prices are decreasing, it can often be more difficult.
There are two important factors in ensuring a straightforward exit. First, concentrate on markets with a history of steadily increasing prices. Volatile marketplaces, while sometimes offering the potential of large short-term gains, are inherently risky.
Second, concentrate on markets with strong domestic activity. Local buyers looking for a home rather than an investment asset are the best form of exit strategy. If you enter an ‘investment market’, can you be certain of finding investors ready to enter a market you’re ready to exit?
Given the right conditions, and the right investment, real estate is primed to play a key role in your overall investment strategy.
Established in 2005, IP Global is a full-service property investment company that helps high-net-worth investors add the strength of global real estate to their portfolio.
Our unique end-to-end approach, delivered by an experienced team of international real estate and investment professionals, untangles the complexities and complications of property investment.
Our end goal is for investors and international landlords to be able to manage and capitalise on their property investments just as easily as they would any other globally recognised asset class.
For more information, please contact [email protected] or visit us at www.ipglobal-ltd.com.
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