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Why UK residential property?

In general


Much of the data on this page was originally compiled in 2012 to illustrate the reasons for launching the TM Hearthstone UK Residential Property Fund. Investors can now find actual fund performance since launch in the fund factsheets, but we feel this information remains relevant when viewed alongside actual performance as it provides a valuable historical insight as to the investment characteristics of residential property.

Familiarity – Residential property is a more familiar and tangible investment option for most of us than other asset classes such as cash, bonds, commercial property or stocks and shares.

Scale – UK Residential Property is the UK’s largest asset class, estimated at over £5 trillion, more than the combined total of UK equities and commercial property.*

Potential performance – As at the end of 2012, over longer terms, residential property has outperformed all other major asset classes – including commercial property - and has also benefitted from lower price fluctuations (volatility) over time.

Track record - Residential property returns have been very stable historically and averaged around 14% per annum from 1970 to 2012.**

Fit with other investments (correlation) – residential property does not tend to follow the performance cycles of other assets such as equities (stocks and shares), cash, fixed interest and commercial property.

For example when equities rise or fall, residential property has historically remained stable. In other words, performance of residential property is uncorrelated to the performance of equities. Therefore, for those looking for a safer, less risky option, residential property can improve the overall stability of an investment portfolio. The graph below shows the historical performance to the end of 2012 of residential property compared to other asset classes over a range of time periods.




Total-Return-by-Asset-Class-42-years.jpg


Rental property in particular


Market demand – The demand for rental property is growing, driven by a backlog in house building, challenges faced by first time buyers, and an increasing population. This means that tenants are increasingly looking for properties to rent, and investors remain keen to buy such properties for the potential of rental income, as well as capital appreciation.
 
Despite improved conditions for mortgage borrowing over recent years, and the introduction of the Help to Buy scheme, those wishing to get onto the property ladder for the first time face large financial challenges. The Halifax First Time Buyer Review stated that the average age for a first time buyer was 30 in 2014, with an average deposit of £29,218 ***
 
Savills stated in their Rental Britain report (dated 27/3/12) that:
  • Over 5 years to the end of 2011, the total value of housing in the Private Rental Sector was up 42%
  • The number of households renting privately had increased by almost 50% (3.4m to 4.8m)
  • By 2016 they estimate that 5.9m households will be renting privately

Moving forward 3 years to the end of 2014, Savills forecast in their Q4 2014 Residential Property Focus that the number of private rented households in England and Wales will to increase by 1.2m over the next five years, meaning that by 2019 24% of UK households will be privately rented.  Even using the lowest figure for national average house price of £176,581*** this equates to the need for over £200 Billion investment into Private Rented Sector housing.

And this need is not just for 1 or 2 bedroom flats. As the age profile of those who rent properties changes, the style of property they wish to rent will need to reflect their needs. With private renting becoming a way of life for many, a significantly greater proportion of conventional houses, as opposed to flats, will be required to accommodate their growing families.

 

Sources:
* Savills, ONS
** Acadametrics, Savills, Hearthstone
*** Halifax First Time Buyer Review 2014, published 06/01/2015
**** Land Registry, November 2014


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Hearthstone Investments PLC is the parent company of the Hearthstone Group. Regulated activities associated with the TM Hearthstone ICVC are carried out by Hearthstone Asset Management Limited, which is an authorised representative of Thesis Asset Management plc, authorised and regulated by the Financial Conduct Authority (114354). Other companies in the group provide investment advisory and other services funds aimed at professional clients. Details of these companies are provided in the investment materials associated with each fund.

Information in this website is presented for information purposes only. No information in this website should be treated as an invitation or inducement to invest in any particular investment product over another, nor as investment advice. If you are in doubt about whether a particular investment product described within this site suits your needs you should consult your Independent Financial Adviser. Neither Hearthstone Asset Management Limited or Thesis Asset Management PLC accept any responsibility for your use of this site other than in accordance with these terms.

Please note that future predictions/outlook observations are Hearthstone’s own views and do not guarantee they will come to fruition. Please also note past performance is not a guide to the future. 


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