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We are currently living in an age of low-interest rates. The Bank of England has dropped interest rates to 0.1% with similar figures being offered from other central banks around the world. With conventional income-bearing products such as government bonds becoming increasingly unattractive, the rental potential of property makes it a desirable option for many investors. In contrast to other assets such as equities dependent on market performance, rental yields are contractually agreed, providing property investors with a greater level of income security.
One of the main benefits of investing in property is the fact it offers impressive diversification within a portfolio. Market performance of property vs equities is often negatively correlated, meaning in times of equity market strife, property will often provide balance to an investors portfolio.
On average, UK property has doubled in value every ten years since 1967. Historical trends do not guarantee future asset performance, however, real-estate has consistently been one of the world’s strongest performing assets.
Ultimately everyone needs somewhere to live, land is finite and the world’s population is continuing to grow at record-breaking rates. Supply and demand dictate price, and with demand increasingly rising, it is likely property prices will too.
Property is a tangible asset. This is something which separates it from many other asset classes. Tangibility equals intrinsic value. The structure of the property and the land on which it sits has value. Well-chosen properties, in locations which have fundamental indications of long-term value which can benefit from favourable demand and supply dynamics, or infrastructure developments, provide security that some residual value will be retained even if the property or location does not reach its anticipated full potential. In short, the value of a tangible asset can rise and fall, but should not fully disappear.
We live in a world of low-interest rates and consistent inflation of around 3% in developed economies. Storing an excessive amount of cash in the bank appears to be increasingly risky. Because of this, storing your wealth in assets which appreciate in value is important in order to combat the forces of inflation.