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Thursday, September 15, 2011

Property myth busting

Some interesting data contained in a new book squashes many of the generally accepted myths on property investment. 

  1. Britain is a country of home owners and Europe are renters.
  2. Property is a guaranteed good long term investment.

As regards myth 1 the book states that in 2009 the home ownership rate in Spain was 85 per cent, 78 per cent in Belgium, 77 per cent in Norway, 75 per cent in Ireland, 70 per cent in Australia, 69 per cent in the UK, 67 per cent in the US and Canada, a still pretty high 57 per cent in France and a lower but still very sizeable 43 per cent in Germany.

As for myth 2, according to data from the Barclays Equity Guilt Study, real house prices grew by 2.4 per cent a year between 1952-2010, against 6.9 per cent for equities.

Read more on the new book in CityAm

Are we all just deluded fools?

Discounted landlord insurance from Alan Boswell
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The Editor said...

Maybe not Hawkeye. I suspect that the Barclays Equity Guilt Study may have assumed that all dividends are reinvested. If so what growth rates for property if we re-invested all the rents received back into property.

Perhaps the figures would look very different then?

Anonymous said...

I built a property portfolio by borrowing, waiting for prices to rise, taking out equity, buying again and then repeating the process. Yes the market was rising but then that is why I did it. Today, even after the price falls of recent years, the portfolio has substantial equity and produces enough cashflow for me to live on and yet I have almost none of my own money invested. Would the proponents of investing in equities like to explain how I could have achieved the same results using equities as my investment vehicle?

Anonymous said...

All you are doing is leveraging. this increases the risk and only works when prices are rising. If you started to buy in 2006 or 2007 then you would bee sitting in negative equity now, and as soon as rates rise you would be bankrupt.

You can repat this leveraging easily with equities, by spreadbetting or CFDs. they allow you to leverage and buy say £100,000 of shares for a £20,000 margin (similar to deposit on BTL). there is a daily interest cost for this (similar to BTL mortgage) and you can earn an income from dividends of the shares (but most are invested for short term aggressive growth). If the share rises by say 20%, then you have made £20k profit on your £100k holding (less charges of course) Therefore your leevraged return is not 20% rise but nearer to 100% as you only put £20k down and can now cash in the 40k and repeat and double your stake etc.

However this is risky as if the share price falls then you need to increase your margin and add further funds. But essentially the principle is the same as buying a house with a mortgage. You are buying an asset that you cant afford to own outright, so you use a loan for the difference, great in rising markets, but can end pretty quickly if things go the other way.