Posted on 29/05/2018 14:43:53   by   Shahzad Mahmood

Property as an asset class

Property as an asset class

When looking at a property as an asset, it is important to consider the current market, and what is said in the news. With Mark Carney strongly indicating that the Bank of England Base Rate will rise, before February 2016 mortgage rates are expected to be effected (whilst also helping those whose money has been locked away in slow moving savings accounts). Concerns are that those who have not experienced mortgage raises previously, and those who have a high level of debt already in their households, may feel their fingers a little singed; but not burned. Mark Carney’s focus has, and will continue to be, that MPC changes should be gradual (and obviously, this will only impact those NOT on a fixed-rate mortgage).

How will this effect the property market?

A 0.25% rise has been estimated by the SWAPS market, which will affect households through an approximate increase of between £20 and £30 per month, which is not a large impact by any means, which should result in little to no effect on the property market.

The other potential recent influence regarding UK property, are the problems in the rest of Europe and the uncertainty of the Euro.

Property in the UK, and chiefly in London, is frequently deemed a safe-haven by foreign investors and is becoming recognised as an asset class in its own right. Having agreed to new terms for its third bailout, the Greek economy, and the Euro, seems to be recovering from the recent glitch (whilst offering us strong currency exchange rates in time for the Summer holidays, which will probably be somewhat short lived now that a resolve has been reached). This has the potential to cause a slight shudder from foreign investors as the Euro will be less strong than sterling, however, with the level of investment from Euro investors, this should not cause any real impact.

With so many of us investing in property with pension pots, as secondary sources of income, nest eggs for offspring etc. the fact that property in the UK is becoming an asset class in its own right is undeniable.

Asset Class Comparison
Looking at the comparison between the FTSE and the House Price Index, the FTSE demonstrates more fluctuations in performance, where the House Price Index tends to experience less volatile behaviour by comparison, which perhaps explains the draw from pensioners towards the Buy-to-Let market.

Compared with UK Bonds, however, growth in the property market appears comparatively weak. It is worth considering that the HPI will focus across different markets, which explains the less volatile nature of property as an asset class relative to the FTSE All index, however relative to the Bond market (frequently considered the least risky of all asset classes), this is comparatively less competitive.

As with any asset class, it always pays to diversify into different markets, in order to help reduce the effects of volatility in a particular area. It is worth considering however, that frequently, Landlords will specialise in a particular market when choosing this as a profession. This is because they need to know a market in more detail than an investor, as they aim to increase their reputation, gain tenants (often without the aid of Letting Agencies in order to capitalise on their returns), and enable themselves to run the property more easily owing to being in their local vicinity.

As with any asset, it pays to read up about your market, watch for movements and behavioural patterns, and invest knowing that your investment could increase or decrease, but as a change to most asset classes, you will have a tangible asset at the end of the day that you can decorate and make your own!