Building on success

14 Mar 2019

Bet your house on it. Bricks and mortar. An Englishman’s home is his castle. Safe as houses

 

You’ve heard all of these phrases before for a good reason. UK property has always been seen as something of a safe haven for trusts and investment, especially in the last 20 years when interest rates have been at historic lows.

 

With the Bank of England threatening further increases in interest rates and political instability causing long-term uncertainty, is real estate in your portfolio or trust still a preferred option?

 

As with all investments, the first stop should be a financial adviser. They will be best placed to assess your aims, risk appetite and recommend a suitable solution. If they do recommend property, there are some interesting themes to take into account.

 

Building for the future

Environmental, Social and Governance (ESG) and impact investing have been some of the biggest trends within the investment industry in the past 10 years and property has been slow to catch up.

 

However, according to the UN, property contributes up to 30 percent of annual global greenhouse gas emissions. Perhaps part of the reason that it hasn’t been fully explored before is that real estate, in theory, should be future-looking by its nature.

 

ESG adoption depends on the investors’ sustainability and investment strategies but usually boils down to the time horizons. Buying and selling quickly, especially in emerging or unconventional markets may generate a quick return but the underlying properties there may not be sustainable which opens returns to depreciation.

 

Instead, investors with a long-term investment horizon are more likely to incorporate a sustainable focus into their investment strategy from the outset so they do pay a high price for a building designed or constructed on the cheap. Otherwise it takes considerable time, effort and money in upgrading the property to maintain its competitiveness for the future.

 

Hidden value

The concept of value in investing is not new but isn’t usually applied to real estate.

 

Value investing is a tactic where stocks are selected because they seem cheaper than their intrinsic value. In property terms, this usually means unearthing a gem - getting away from the obvious – whether that is location or particular property.

 

Nine Elms on the South bank of the Thames before the extension of the Northern Line or towns and villages in close proximity to HS1/2. These undervalued areas have received a massive boost from infrastructure funding.

 

For example, prices in the middle of London may be “safer” and are less likely to drop but if you had bought a flat in Stratford, East London 10 years ago, the value of your property would be over 1500% higher[1].

Like a good daytime television programme, there are bargains to be had if you look in the right places.

 

 

[1] 3-month moving averages by property type in Stratford. House Prices Report – home.co.uk


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