Why UK property should be part of your investment portfolio
- 14th June 2023
- Opinion
UK property has long been considered an attractive investment opportunity, providing investors with a way to build stable, passive income, and benefit from long-term capital gains underpinned by an in demand asset that is well understood. Recent changes to legislation and high interest rates may have made buy-to-let less appealing, but that does not mean property will no longer deliver strong returns.
Here are seven reasons why property can still deliver as part of a well balanced portfolio.
Why should you invest in property in 2023?
Demand for UK property continues to grow
A combination of population growth and changes in household composition are driving demand for UK property. According to the Office for National Statistics (ONS), the UK population is projected to grow from 67.1 million in 2020 to 72 million by 2040, primarily due to immigration. And with UK households getting smaller – the average property is now home to just two people, down from three a few decades ago – there is more demand than ever for UK property.
Not enough new homes are being built
A combination of overly complex planning regulations and local NIMBYism has resulted in too few homes being built in recent decades. The backlog is now estimated at over 4 million homes, which would take decades to build even if the government met its annual house-building targets, which it continues to miss.
Currently, property developers often find themselves in a situation where it is more profitable to engage in land banking than housebuilding. When they do build houses, they are incentivised to release them onto the market at a slow rate in order to drive up prices and profits. In effect, the current system in the UK is oriented towards undersupply.
According to Savills, over the past 70 years the average UK house price has risen by 365%, even on an inflation adjusted basis. Soaring demand and a lack of supply means that this trend is likely to continue.
Property is a hedge against inflation
Inflation erodes the value of assets over time, and inflation-adjusted returns on many asset classes are frequently negative during periods of higher inflation. However, property investments can provide a hedge against inflation. They maintain the purchasing power of capital by way of capital appreciation and also by rising rents, passing on some of the inflationary pressure to tenants. As Knight Frank explain:
“There are two key arguments for residential property being an inflation hedge. A pure hedge in that rental income rises in line with, or faster than, inflation, and that capital appreciation over the hold period outpaces inflation, providing the investor with a real, inflation-adjusted gain.”
Bricks and mortar are physical assets
Property investments are simple to understand and tied to tangible assets that have intrinsic value. Some investors view property as a hedge against economic uncertainty as people will always need a place to live. The housing market has been less volatile than that of some alternative investments, such as cryptocurrencies. Whilst prices do still fluctuate, those looking to invest for the long term, find that property is simple to understand and has historically delivered strong returns year after year.
Rental yields offer a regular passive income
Rental yields offer property investors a way of generating monthly passive income from their assets, and can be viewed as an alternative to income stocks or bonds. Each of these asset classes provides different risks and rewards, with rental yields a useful part of the mix as they are not directly impacted by fluctuations in the stock market and can rise with inflation.
Property helps diversify investment portfolios
Property investments are an asset class that is not directly correlated with the ups and downs of the stock market. It can therefore function as an effective diversifier in an investor’s portfolio and help to reduce the overall portfolio risk and volatility. As Barclays notes:
“Diversification means making sure you’re not relying on one type of investment too heavily. This helps to protect your investments and reduce the overall risk of losing money.”
Property investment can provide a social good
Investments in social housing provide the opportunity to do some good with your money.
The social housing sector provides low income housing, as well as housing for those with disabilities, the homeless, those escaping domestic abuse, asylum seekers, or other groups that require safe and secure accommodation.
Rent support for these groups is generally provided by local or central government schemes with voids in occupancy usually covered by a housing association, and so social housing offers investors a stable source of rent alongside making a positive social impact.
Until recently, the only way to invest in social housing has been through REITs or becoming a private landlord, with all the associated hassles and risks. However, Assetz Exchange has created a new alternative route into this market for retail investors, providing a platform where anyone can put their investment capital to good use.
P2P property investment means no need for a large capital deposit
Traditionally, to invest in property one would need the capital to buy a property outright or the deposit for a buy-to-let mortgage, which put the asset class out of reach of many retail investors. Today, however, peer-to-peer (P2P) investment platforms like Assetz Exchange offer investors the opportunity to invest in a slice of a property, and benefit from a commensurate percentage of both the rental yield and capital gains, from as little as £1.
Start investing in property from just £1 with Assetz Exchange today.