Why does property represent such a great investment - and always will?

There are several key reasons.

The first is that the U.K. market is based on the simple principle of supply and demand. (However, the supply of good financial products also plays a key factor, which is the main reason why the U.K. market is currently stalled).

Over the long term, property keeps going up in value due to demand outstripping supply.

As the Halifax building society have stated, property in this country has, on average, gone up by 357% over the last 20 years. That in turn means U.K. property is doubling in value every 7 - 10 years!!

Now before you say `no it doesn’t`, think about your property or maybe a member of your family’s property, it’s not far from the truth is it? Let’s not argue about how long it takes property to double in value, it could be 5 years, 7 years or even 10 years - the point is, it does. Even the properties that suffered from negative equity during the late 80`s and the early 90`s, think about it, how much are they worth now!?!? We have historical precedence and records of over 60 years to prove the stability of the U.K. property market. That is why many other nationalities are buying property in the U.K. – they recognize that – and that again is fuelling the market. Most of the West End of London is now owned by Russians and a huge proportion of property within the M25 is owned by foreign investors who benefit from certain tax breaks.

Providing you take a medium to long-term view (and not treat it as a "get rich quick" scheme) property will always do you well. You only have to look at the Sunday Times “Rich List” to see that the majority of the people on that list created their wealth through investing in property.

So, in effect, if you own £1M worth of property, you can predict when you will become a millionaire. There are not many investment vehicles that allow you to predict the future in that way!

But what makes property go up in value? It boils down to one very basic economic fact of life, supply and demand. We don’t have enough property and too many people wanting it. Whenever you get that combination there is only one inevitable result…that prices will rise over the long term.

Although it’s not one of the most gripping reads, the Barker Report (Dec 2003) suggests that the UK has been building, on average, only 150,000 units per year and has been since 1949. Meanwhile, the population within this country grows at the rate of 180,000 per year, spread between births and immigration. This clearly shows a negative flow in the supply section…and an extremely positive flow in the demand section!

That means we have to build properties at a rate of over 400,000 a year just to stand still !! The last time we did that in this country was when it peaked in 1967 at 400,000…1 year out of the last 100…the rest of the time we were plodding at around 100–200,000 mark.

Although this information compliments the supply and demand issue, let’s not forget other information that nails it.

Let’s talk in more detail about population growth. As well as an exploding population and economic immigration, the reality of it is we’re not dying at the other end either! There are more 60 year olds than 16 year olds in this country. So, it’s not just that we are giving birth to a new population, we are also living a lot longer. All that housing stock is not coming back onto the market. A new government statistic stated that of every two babies born in the year 2000, one of them would live to be one hundred years old! That is going to have a huge impact on the housing market.

Divorce is also another major factor. Do you know what the divorce rate is in this country? It’s sitting at 40% - that’s 1 in 3 - so potentially a third of all people reading this will be looking for another home at some point within their lifetime without their current spouse.

The simple fact is there are more people wanting, what is, a very short supply of property.

It’s also worth noting that in the greater scheme of things, we as a nation are quite an economic driver. Why do you think we have so many people coming here to earn their living? The point is we are an island and not a very big one, I would argue we are getting smaller. No one is making any more land, so land will become an increasingly rare commodity.

Land is a scarce resource and its development comes at a cost. The government PPG3 paper also states that brown-field sites (sites with previous development on them such as an old pub, petrol station, or nursing home) must be developed first, before greenfield sites (undeveloped virgin land). These sites take longer to develop as previous buildings have to be demolished, the ground cleared etc. This again puts upwards pressure on the housing market.

Property is a tangible asset, unlike shares, for example. Treat your properties like a business, and you’ll find them the best employees you ever had. They never complain, never take a day off sick, never go on holiday, and, if you treat them and your tenants right, earn you cash-flow 365 days a year, rain or shine! Using the principles of leverage to make your money work harder, property is a very hardworking asset that can generate cash flow month on month.

We also love the fact that property doesn’t discriminate. You don’t need A Levels or a degree education to get involved, and it doesn’t matter what colour, creed, religion, age or sex you are, or how much you earn! The advent of the buy-to-let mortgage in 1986 has allowed the ordinary man in the street to make money in property as the mortgage is not completely based on your personal income. We personally know of hundreds of people in ordinary everyday jobs who have all got successfully involved in property in order to achieve financial freedom.

Finally, unlike a pension that you have contributed to your entire working life, the wealth you created in property doesn't have to die when you do. It can be left as a legacy for your children.

So whether you are looking for a pension, a way to fund your children’s education, spend more time with your family, or achieve a lifetime ambition, property investment is a vehicle to achieve financial freedom, which in turn gives you choices and lifestyle.

We are CASH-FLOW investors. If you invest in this format, you will be making money month on month from the rent. Therefore, you can afford to be involved in property for the long term and benefit from capital growth in the future. Without CASH-FLOW, your property business is dead in the water. The capital growth is just the icing on the cake.

Whatever happens, people will always need a roof over their head - that will never change and that is why property should always be part of your investment strategy.

To conclude: -

Demographics: - household numbers in Britain are expected to grow by an average of 180,000 per year. We built around 150,000 houses per year. Therefore if the objective was zero real house price inflation we would need to build an extra 240,000 per year bringing the total to over 400,000 and we would have to sustain that for a number of years….clearly this is not going to happen. (The latest figures state that 1.5 million extra homes will be required by 2020 to cope with the influx of immigrants / migrant workers)

So you can see the economic facts of life, we don’t have enough property and an over demand for it – this will only lead to one conclusion – prices will continue to rise over the long term. In the meantime, focus on positive net cash flow from the rent.

Like real life, property likes to repeat itself. Like all markets, it will have highs and lows. However, supply and demand determines that, over the long term, the general trend will be up and if you have cash-flow you can ride out any challenging market conditions.

Nick Tadd
Director – 4wallsandaceiling.com

Factual information gathered from: -
Halifax PLC, HBOS plc, Kate Barker report