Email of the day on property investment
Comment of the Day

December 24 2019

Commentary by Eoin Treacy

Email of the day on property investment

CBS MarketWatch posted an article today advising against investing in residential property.  See attached.  This runs counter to the experience of most of us in the “Anglo-sphere” since the end of World War 2, but all good things come to an end one day. 

An end to the current boom in asset prices, because of low interest rates, seems inevitable if not imminent but, more than equities, residential property is illiquid and a long-term option which may entail more risk than most contemplate.  Does Fuller Money have a view on this matter?

Eoin Treacy's view

Thank you for this question which is not an easy one to answer. Real Estate is an incredibly diverse asset class which, as you say, tends to be illiquid. Like any asset it is best bought following a bear market but there are also individual constraints on supply that support higher prices is certain locations.

The rental yield on property has contracted right along with bond yields in most countries and that does represent a challenge if we are indeed going to see higher yields. The counter argument is real estate tends to offer a reasonable hedge against inflation. If that is the future residential property is less likely to deliver the same kinds of returns as it has during the bond bubble.  If Japanification is a realistic outcome for Europe property prices could stagnate rather than decline meaningfully.

From the perspective of a global investor I think there is merit to having a position in property in locations which offer strong property rights, increasing urbanisation, limited supply and strong economic growth.

High personal debt levels and long repayment schedules generally suggest we are not early in the cycle. Where those kinds of characteristics are evident, such as in Australia and Canada’s major cities or Hong Kong, some diversification away from property where it represents the bulk of one’s portfolio, is probably not a bad idea.

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