Best performance, lower risk: Is residential the ultimate asset class?
Let’s play a game of hindsight. Step back twenty years…if you had invested £100 into four of the major asset classes, how much do you think you would have now? No need to guess – from now on, we’ll be answering questions like this with the help of our new Property Partner Residential Market Index.
Developed by our in-house research team, the Index presents the most accurate picture yet of how residential property has performed since 1995 (when records began in the form of the House Price Index) – net of operating costs and capital improvement expenditure.
So, how much would you have made from that £100? The Index shows that £100 invested in London’s property market twenty years ago would be worth £1195 today. This compares to:
- £728 for property in the South-East
- £608 for property across England and Wales
- £473 for the FTSE All Share index
- £299 for gold
- £224 for cash savings
‘Best performance’: twenty years of total returns
In a marathon race of returns, the graph below shows just how far residential has outstripped the rest over the past twenty years. Moreover, this is without taking into account the amplified returns that many investors will have seen through gearing, or mortgaging, their properties.
Residential property investment in England and Wales has delivered an annual total return of 9.34% on average over 20 years. Total returns vary widely across regions – with London offering lower income and higher capital growth, versus regions outside London where the balance is more even, or the opposite is true. For example in 2015 net yields averaged just 2.7% in London, versus 4% in the North-East.
Over time we also see the impact of increasing property prices in London and the South-East squeezing investor yields in these regions.
‘Lower risk’: a hedge beyond the garden
If you thought your investments were safest in gold’s warm embrace – you were beguiled. Unless you’re willing to settle for a disappointing relationship with your savings account, residential property comes solidly second as the next lowest risk investment. See below:
Residential represents a lower risk investment, with higher rewards – it’s a real asset of bricks and mortar, and brings in rental yield. Furthermore, residential acts as a strong hedge against wider volatility in the market, as the drivers of supply and demand in the housing market are not closely correlated to the performance cycles of other assets.
There could be no better evidence of this than during the Global Financial Crisis. From its peak in February 2008 to its trough in April 2009, residential property in England and Wales fell 14%. The FTSE All Share total returns index, which peaked in February 2007 and bottomed out in February 2009, fell 41%. While gold served as a safe haven during the Global Financial Crisis, in the longer term it has proven volatile, and significantly underperforms residential property.
Conclusions: Improving on the past
Our Director of Property, Robert Weaver, often describes residential property as ‘the ultimate asset class’. With the best performance, at the lowest risk, it seems he could be justified. However, the ‘ultimate’ of residential investment has been exactly that – a distant prospect, inaccessible or inconvenient for all but a few investors, blessed with significant time and money to invest in the asset class.
The arrival of Property Partner has opened up this asset class to everyone. Finally, people can invest in residential property in a more accessible way, building a diversified portfolio at the click of a button, and all without the usual hassle of mortgages, solicitors and maintenance.
Ready to begin your residential property portfolio? Start with one, keep building, and you could have properties everywhere. Take a look at our Marketplace to start investing.
We’re building a better way to invest in buy-to-let, and investors are not the only ones who benefit. Learn more about how we’re building a way to invest in property that is better for everyone.