Is investing in residential property a sound investment today?
Despite the ongoing cost-of-living crisis and escalating inflation, residential property values continue to soar. According to Nationwide, annual house price growth has reached 11.6% as a national average. It’s the fastest annual growth in 17 years. At a regional level, there are areas where that annual growth is significantly higher still, with the South West of England weighing in at 14.4%.
The Office for Budget Responsibility (OBR) forecasted that UK house prices would decline this year, alluding to the increasing pressure on household budgets. However, property values continue to climb, despite the small but steady rise in interest rates and subsequent borrowing costs.
Why is the UK property market showing up the OBR’s predictions?
There are many reasons why the UK property market remains buoyant and ripe for investors. First and foremost, the limited stock of properties available for sale is creating a seller’s market. Combine that with the continued demand from first-time buyers to get on the property ladder and those looking to upsize and grow their families and there’s always going to be demand from somewhere.
In 2022, Jones Lang LaSalle (JLL) anticipates nationwide rental values to rise 2% for buy-to-let investors, with an 8.5% rise in the next five years. It pointed to the West Midlands market as being the most fruitful opportunity for investors, with the potential for rents to rise by 12% in the next five years.
Property investors cannot afford to rest on their laurels
Although all the indications are that property investing remains a sound option, at least in the short-to-medium term, the illiquid nature of property ownership is not without its risks. The danger for risk-averse property investors is that the market crashes, making it very difficult to quickly sell the property. With every day that passes during a property market crash, investors are losing equity.
Many during the 2008 global recession and subsequent property market crisis struggled to simply break even. The ongoing crisis in Ukraine is heightening geopolitical tensions, which is also causing a strain on the cost of living with rising food and energy bills. All of which create the potential recipe for an unexpected property market crash.
Promising Alternative Avenues
For investors looking to become more financially independent in the years ahead, it’s best to diversify your investments in other avenues, too. This can help mitigate the fear of losses in the property market. Particularly if you can use other investments in companies and commodities as an effective hedge against residential property assets.
If you work for an ambitious, growing company, it may be possible to get potential share options in the coming years that can yield sizeable returns. Employers increasingly use stock options to incentivise their top talent to stick around and be a part of the company’s future. There’s a difference between buying shares now and getting ‘options’ on shares. A share option gives you the opportunity to buy shares in the future at a set price. The idea is that the pre-agreed price could be considerably lower than their future market value, allowing you to buy and sell immediately to lock in a profit.
For a comprehensive breakdown of stock options explained, this guide discusses the nuances and benefits. It’s also easier than ever for retail investors to gain access to the biggest equities and indices using online brokerages. Contracts for difference (CFDs) trades make it possible for retail investors to speculate solely on the value of stocks, indices and other real-world assets, without having to physically own the underlying asset.
The burgeoning cryptocurrency industry is another avenue for exploration among investors keen to diversify and mitigate the risk of any property market crashes on your overall investment portfolio. Of course, the unregulated nature of cryptocurrency investments means that this should be considered another high-risk cog in the wheel of your portfolio.