Shares versus property
2 Mar, 2018
“Real estate is an imperishable asset, ever increasing in value. It is the most solid security that human ingenuity has devised. It is the basis of all security and about the only indestructible security.” – Russell Sage
"I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful." - Warren Buffett
Whether to invest in shares or property has been a topic of debate for decades and it’s all about timing it right and playing your cards intelligently. The stock market was traditionally a very aggressive place to invest, but with slow down due to socio-economic changes in the country, people are getting more inclined towards investing in property for better returns. The impact on the property market due to any economic downturn, political instability, or any other reason is not as drastic or as sudden as the share market. You have more time to take a decision and react.
To make an investment, one need to compare different asset classes before taking a decision and one of the best ways to compare is by their indices. The growth in U.K property market outpaced the value of FTSE 100 between the year 2000 and 2017. Market experts predict that the housing market is predicted to rise further and if you look at the buy-to-let market, the rent which you get can be utilised for paying off your mortgage, thus increasing your return. So, it might be worth investing in a property.
Another thing which works in favour of property investment is that with low rate of interest, borrowing from the bank has become cheap for buying a property. However, if you ask for loans from bank to invest in shares, it is unlikely that they will give you the same deal.
To increase your investment portfolio, you tend to borrow money which is called as leveraging. For instance, if you were to invest £100,000 in the stock market and the shares doubled eventually in value over a period, your return would have been £100,000. However, if you used this money to purchase a buy-to-let property worth £250,000 and borrowed remaining £150,000 and the price of property doubled to £500,000, you might have got £250,000 as your return on investment after paying off the mortgage through rent earned.
An average investor in a stock market has the same information as anybody else and can purchase equity at the same rate as others. Whereas in the property market, the property can be bought or sold at prices lower or higher than their actual value. For instance, you can quote your property value on the market higher than the average to increase the return on your investment. However, there is a flip side as well to property investment and that is it needs regular maintenance and is also difficult to sell if you need immediate money, unlike shares.
To sum up, investment is a personal choice; however, one should look for a well-balanced and diversified portfolio for better returns. And inflation, liquidity, volatility, and affordability all play a crucial role in your decision-making process.
Note: Always seek good advice before investing. Values can increase and decrease.