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- Property - Ways you can invest

When it comes to hype the property market takes some beating - firstly you are told the opportunities are too good to miss. TV property programmes show how renovating an old property can net you a cool ₤100,000-plus in a matter of months - it all seems too good to be true and then one day it becomes apparent it is!

When property prices drop, demand drops and suddenly those property developers who thought it was a cast iron way of making a tidy profit are struggling to pay a mortgage on a second property that they can’t sell and that is now worth less than they paid for it! In recent months we have heard some positive noises regarding house price stability and even house price rises in certain areas. Could it be argued that now is the time to invest in property again?

Peter McGahan, IFA with Worldwide Financial Planning is having none of it. “I think if you are buying a property to live in for the long term then now is not a bad time to buy as the dip in house prices that will come is not going to really affect you very much. But buying residential property as an investment is a no-go area as far as I am concerned, rising unemployment and banks forcing sales will trigger further falls in prices. You have also got the fact that buy-to-let investors now have to find hefty deposits (25% plus) to get anything like a reasonable loan from a lender at the minute. There is also the likely prospect of a rise in interest rates soon which will impact on mortgage payments. I think for the risk you are taking on investing in residential property you would need to be looking at yields of 7-8% and I just don’t see buy to let property producing that.”

Andrew Merricks, head of investment at Skerritt Consultants echoes McGahan’s comments. “When interest rates rise we will see more buy-to-let investors being forced onto the market bringing down property prices further. There has been a short term stabilising of property prices but we are in no way even close to a prolonged upturn. It is important to remember the last property crash in 1989 which lasted seven years from peak to trough – we are only two years into this one so I would suggest we have a long way further to go yet.”

Residential property might be one for investors to avoid but Neil Mumford, IFA with Milestone Wealth Management suggests commercial property might be the place to be. “As we have seen from the equity markets it is very difficult to try and call the bottom of the market. If you are investing for the longer term, property has proved to be a resilient investment. Having fallen on average over 20%, commercial property funds are now yielding typically 5%/6% and even though in the short term they could fall further, I believe in the medium to short term there is more upside than there is downside.”

McGahan takes a similar stance to Mumford:“ Commercial property investment via a fund is far more attractive and even more so in a REIT (Real Estate Investment Trust) where the huge assets are still trading at a discount so there are some big gains to be made there.” Whilst Mumford advocates investors to include property as a way of diversifying their investments (in theory property should not perform in correlation to equities, bonds and cash) he stresses the importance of keeping things balanced. “When building an investment portfolio you also need to consider your overall assets including your own home which you may well have a significant amount of equity investment in”

He adds that if you don’t include your own home in this calculation you will not get an accurate representation of your exposure to property in general. “Ideally you want your investments spread between property, equities, bonds and cash. As the saying goes you should never have all your eggs in one basket."

- Property - Ways you can invest