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Mon, 01.10.2007 - 09:59
Real Estate: Safe as houses? - Why property is still a sound investment choice
Over the last decade we have witnessed a dramatic shift away from traditional areas of investment such as stocks and shares, bonds and gilts, savings schemes and antiques, towards property investment. Investing in overseas and emerging property markets has become more desirable as traditional areas have performed below par and yielded low returns for investors.
A worldwide change in market conditions has also greatly contributed to this phenomenon. Recent market jitters in the UK, resulted in billons being wiped off the share value of some of Britain’s leading companies. Playing the stocks and shares market has become more difficult in a volatile market. It is also an area that requires expert if not insider knowledge, many people are coming to the realisation that if the world’s stock market takes a turn for the worst, their retirement nest egg may not quite live up to expectations.
Placing your hard earned savings in high interest accounts has always been a popular option however here again there are disadvantages, your money is tied up for a long periods of time and remains largely inaccessible with high penalties for early withdrawal.
Investing in antiques and gems remains somewhat off-limits for your ordinary Joe Soap unless you possess certain expertise along with oodles of cash and time.
While, the latest “Get rich quick” scheme doing the rounds involves buying up commodities which in the future could become scarce such as wine, coffee and water and the like. Sounds promising, but there is a downside, you need huge amounts of capital. In order to buy 100,000 pounds worth of coffee beans you need 100,000 cash to do so.
Last years predictions of a UK pension crisis, the poor performance record of private pension funds coupled with government warnings to the public to make provisions for retirement has forced people to look elsewhere to provide for their old age. An interesting survey, recently carried out by Fool.co.uk found that a staggering seven million homeowners plan to release equity from their homes in order to provide for their pension. In other words, people have decided that the inflexible, traditional pensions are not working for them and instead they intend to release equity from their homes either to fund their retirement or fund a mortgage to purchase a property overseas.
It’s no wonder then, that savvy investors have turned to property as traditional investments fail to reap substantail rewards
Other factors influencing people to invest overseas include the fact that many young people have now found themselves priced out of the housing market in the UK and Ireland. By investing overseas they have be able to get their feet on the property ladder, the entry level pricing is lower and properties offer much better value for money.
Investing in an overseas property only requires an initial outlay of 20 – 25,000 thousand pounds with a deposit of only 3- 5,000 pounds required to freeze the price and take it off the market. Favourable payment plans are available from most developers with some properties requiring no further payment until completion. It is normal to finance the balance with a mortgage or equity release from a property at home if you have one. And after purchasing there is also the option to rent the property which can help cover interest repayments.
So property seems to be the way to go, however the recent sub-prime crisis in the US and the Northern Trust debacle has made people uneasy and begin to question if property is really such a stable and secure investment. The answer has to be yes.
The US sub prime fall out had to happen in order to “rein in” unsustainable price inflation in the US and it should not be confused with the European mortgage market where such a disaster would never happen in such a highly regulated market as ours.
Property has a life cycle like everything else and fluctuations are required in order to readjust the market to normal levels. Even when property crashes occur as in the UK in the early 90´s, the value of property recovers and in the case of the UK prices soared.
And it is also true that banks can go bust but even though Northern Rock savers have taken out some £2 billion over three days, the overdraft facility offered by the Bank of England and guaranteed by Prime Minister Gordon Brown has still has not been utilised.
But would be property millionaires still need to be aware that investing in property requires a long term commitment. You need to be able to sit back and wait for your investment to mature. It is also vital to do thorough research about the area or country you are interested in.
Choosing the right company is essential; they should work alongside reputable developers and ensure that all due diligence checks are carried out to ensure all properties have the necessary licences in place.
It’s reassuring to note that record figures of people are investing in the overseas market. According to a placeinthesunlive.com British families have already invested some 23 billion in overseas property. They obviously believe that their investment is indeed “safe as houses”.
By Louise Gannon
Louise may be contacted at Sunseeker Homes; specialists in overseas property investment.
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