The world economy is suffering a slowdown, from Beijing to Berlin, while the financial markets are bearish and volatile.
Investors are faced with flat interest rates continuing – the market is not expecting interest rate rises in a meaningful way.
Meanwhile, a slowdown in consumer spending is leading equity markets into a downward trend as the bull run fades and volatility continues.
On top of this, the property market is slowing – including a drop in top-end London prices reverberating downwards and outwards through the UK market.
So much economic uncertainty and global market correlation makes it challenging to find suitable investment opportunities.
However, our research shows people still have great trust for investments backed by ‘bricks and mortar’, and property continues to be a popular asset class with investors and their advisers due to historical long-term growth – having generated a return of 10.9 per cent a year since the 1970s.
As property prices are not necessarily correlated to the stock market, UK property values can remain resilient during periods of economic downturn.
With the impact of tax changes on buy-to-rent continuing to affect smaller property investors, many previous ‘would-be’ landlords, as well as passive and more casual investors, are now looking to invest in property through funds and structured products.
The good news is that there is a growing range of innovative products and wrappers, allowing private investors to access unlisted and uncorrelated investment opportunities that once were the domain of institutional investors alone.
Listed funds and trusts
Investing in property for private investors has tended to mean purchasing property directly or investing in listed funds and trusts. These listed funds remain popular to gain exposure to property:
• Commercial property funds invest in commercial property, such as retail, office blocks and warehouses. Yields can be higher than those available from the residential market, but there are associated risks. Commercial property can stand empty for longer than residential.
• Residential property funds and trusts offer exposure to the UK residential market through flats and houses within the rental sector. With this option clients can benefit from diversification as they have a share of many different properties.
• Indirect property funds focus on the shares of companies within the property and property development sector, rather than physical bricks and mortar. In this case, their performance is linked more closely to the wider share market and the trading performance of these companies, rather than the value of property.
The types of properties within funds is an important consideration. For instance, offices and warehouses could generate good returns in 2019, but High Street properties are under pressure.
Similarly, with residential property clients may want to know whether they have exposure to the top end of the market and central London as some areas have decreased in value – and this may reverberate into other regions in 2019.