The most obvious implication is that property works best when treated as a long-term investment. This is why I, and others, champion the view that once you have bought a property, unless there are compelling reasons for doing so (and these might be personal as well as property related) you really should never sell. If you got into property investing a little over ten years ago when buy to let first started you will have already seen some amazing returns on your properties just from capital growth but, believe me, you have hardly started.
Even if the doom mongers are right and there is a “correction”, the trend for property values will always be up. That has to be the case in an inflationary economy unless, I guess, there is an almost unimaginable distortion in supply and demand.
We saw this is in the 1990’s when property went through one of its worst periods since records began. Despite significant decreases in values in some areas, if you look at the indices, values in all areas had recovered by the end of the decade and were still higher in year 2000 than year 1990. In fact, had you invested in property in 1980 and then gone into a deep coma only to wake today, on the basis of property values you would probably have trouble in imagining that there even could have been a recession or two along the way.
Actually, tangentially, I think it’s also worth making the point that history suggests that property does not crash. The Stock Market crashes. On Black Monday in 1987 we saw the value of the market drop by 30% in a single day. But property values do not drop by 30% in a day. Indeed in the recession of the 1990’s, in the worst affected areas it took four years of gradual falls before property prices reached their trough. I’m not belittling the effects. It was a difficult time for many people and I wouldn’t wish being repossessed on anyone. But I am making the point that I do not think we need to worry about waking up one morning and finding the value of property has collapsed. Short of nuclear war or other unforeseen horror, it’s just not going to happen. But it can happen if you have your money in other types of investment.
In fact, as I said earlier, more likely is that property will continue to grow on trend. Yes, there may be ups and downs on the way, but the overall trend will be up. Why do I say this? We’ll I’ve already mentioned that we live in an inflationary economy. Note that the role of the Bank of England isn’t to eradicate inflation altogether but to keep it at 2%. We need some inflation to keep the economic engine running.
Here’s to successful property investing.
Peter Jones B.Sc FRICS
Chartered Surveyor, Author & Property Investor