Despite of the current uncertainty in the London property market, property investors should remind themselves of the benefits of property investments compared to other asset classes. According to a new research by British Pearl, average UK prices over any 5-year period in the past 50 years would have resulted in a buy to let profit 83% of the time. Hardly ever in the past 50 years have property prices dropped over a 5-year period, with average property price growth over that time adding an impressive 58.6% over 5 years. The prices only dropped in 5 periods, representing 89.1% success rate. Stamp duty, mortgage payments, legal fees and interest were then factored in. This then recognized a further 3 years in which investors who bought properties would have lost money over the following five — a success rate of 82.6%.
Property prices only fell significantly during some of the country’s most challenging economic crisis such as 1989 to 1991 and 2007 to 2008.British Pearl’s analysis involves conservative estimates for interests of mortgage on a non-compounding basis, and hence identifies three other years in which entries into the property market would have resulted in a loss over five years. They were 1988, 1992 and 2006.
The average investors buying in 1969 would have benefited from £4,589 in growth and a return of 148.6% by 1974. This is due to prices increasing from £3,818 to £8,936. Between 2007 to 2012 the market witnessed the sharpest drop in house prices about 7.9% on average. Entry average investors would have suffered the worst loss between these years i.e., £32,111 in loss — 17.6% of the original purchase price of £182,243.
The findings of the study come as a caution to investors/landlords looking to exit the market and come back in few years when they think they could buy them cheaper. This trend has grown in the past 5 years as property prices in many areas have become exorbitant. In the Capital, the average property price rose 51% from 2013 and increased from £320,921 to £484,584. Additionally, Halifax’s latest property price data in July highlights the average property price at new record high of £230,280.
The analysis flies in the face of an increasingly skeptical outlook in some quarters.
According to James Newbery, an Investment Manager at British Pearl: “This research shows investors who play their cards right and hold their nerve in the midst of economic or political upheaval are still likely to come out on top. History shows us that investors who are prepared to weather storms rather than run for cover are still able to make strong returns at times from investments that present a very limited risk of loss. While this analysis shows property has been a best investment asset class over time, we know that returns can be bolstered with careful property selection, identifying regional trends and areas of rental yield strength.
Furthermore, the message, not just for investors but homeowners, too, is to play the long game. UK property has a track record of returns and, no matter how tempting it is to think prices are unsustainable, the level of demand for housing in Britain makes property one of the most attractive asset classes on an ongoing basis. Those investors who ran for the hills after the dip between April 2007 and April 2013, only for growth to recover in the years that followed, will be kicking themselves for acting on impulse and abandoning property altogether. The secret to successful property investing is ultimately the same now as it ever was. The market consistently rewards those who remain level-headed, diversify portfolios and do their research.”