Historically, property has always been a great medium to long-term investment, regardless of short-term market fluctuations.
Consider these facts:
- • Since 1956, the compounded average annual increase in house prices has been 8.5%.
- • According to nation-wide figures, the worst fall in the property market was 11% back in 1990.
- • In the 32 years since the Department of Records have kept statistics, prices have risen in 28 years and fallen in only 4.
- • According to the Office of National Statistics, rents have risen on average by 13% per annum since 1962
The following graph illustrates the dramatic rise in average house prices from 1970 through to the present day, clearly demonstrating the merits of property as an investment vehicle.
"...due to the underlying issue of supply and demand, house prices would grow, on average, by 6.24% a year between 2002 and 2020."
We believe that property will continue to provide excellent returns in the medium to long-term. This view is based on the economic principle of supply and demand.
Trends such as an ageing population, increasing immigration, higher divorce rates, fewer marriages and smaller households all contribute to an increased demand for more housing.
The supply of housing has been unable to keep pace with this demand due to a complex planning system that hinders development.
To rectify the situation the government has set a target of building an extra 240,000 properties each year by 2016 yet house building is currently running at about 165,000 homes per year. In other words, the shortfall in supply will not be resolved anytime soon. Research done by the Centre for Economics and Business Research predicted that, due to the underlying issue of supply and demand, house prices would grow, on average, by 6.24% a year between 2002 and 2020, meaning the price of the typical home would rise from £101,164 to £300,643.
In addition, we currently have a very benign economic backdrop of low interest rates, inflation close to the government’s target and high employment which are supporting the housing market.
With nervousness in the stock market and large falls in pension funds, more and more people are turning to property investment.
Strong Rental Market
Unlike past generations who preferred to own their homes, the number of people renting accommodation across the UK is growing steadily every year and currently comprises over 30% of properties. The Centre for Economic Research predicts that rental demand will nearly double inside ten years. Escalating house prices are pushing buyers out of the market and into the rental sector. Increasing numbers of students, divorcees and single people are renting.
Leverage
One advantage that property holds over many other forms of investment is the ability to leverage your investment. Unlike other investments such as stocks and shares banks will lend you money to invest in property as it is a stable and secure asset in the medium to long term. Gains are based on the sum of your personal investment and money borrowed from the bank, magnifying any return on investment.
