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How Has Property Investment Performed in the Last 25 Years?

CSI PROP looks at the price growth performance of the residential property market in selected key countries from 1995 – 2020. How has property investment stacked up compared to other investments like the stock market?

Why property investment?

“Real estate investing, even on a very small scale, remains a tried and true means of building an individual’s cash flow and wealth.” ― Kiyosaki, Robert T.

Novice investors view property investment with some hesitation, since it requires more initial capital than investing in stocks, REITs (real estate investment trusts) or mutual funds. The more seasoned investor, however, knows very well that property is an indispensable addition to any portfolio.

Although property lacks the liquidity of the stock market, it is  a compelling investment alternative with lower risk compared to many other investment vehicles and yields better (long-term) returns through  rental income and capital appreciation 

Property investors are also able to take advantage of substantial tax benefits and have more leverage over their capital, enabling them to invest further.  For example, UK property investors (depending on country of origin), enjoy personal tax relief worth thousands annually, on top of the current low and competitive mortgage rates resulting from low bank rates. 

More than anything, the COVID-19 pandemic has forced us to reexamine the importance of having a home as businesses and industries close their shutters and commercial real estate suffer as a result. Read more about property and covid-19 by clicking here.

In a nutshell, because homes are a necessity, residential real estate remains a great investment. This is especially so in markets that are experiencing a housing undersupply. Additionally, property is not as vulnerable to economic shocks, hence prices do not usually suffer from volatile fluctuation.  

How has property investment performed (1995 – 2020)?

National price growth of the average residential property in 25 years (*latest data for Malaysia & Germany is only up to Q4 2019; data for Q1 2020 is yet to be released)
National price growth of the average residential property in 25 years (*latest data for Malaysia & Germany is only up to Q4 2019; data for Q1 2020 is yet to be released). Sources: data.gov.sg, URA, HM Land Registry, data.gov.hk, Economic Research Division, Federal Reserve Bank of St Louis, Abelson & Chung, MHPI & RBNZ, ABS, CSIPROPResearch

For our research, we studied the price growth of property in a few key countries from 1995 to 2020. Just taking into account capital appreciation (without considering rental yield), the above graph shows how these property markets have fared over the past 25 years.

Property in the UK had the best showing with an increase of 314%, followed by Australia (295%) and Hong Kong (257%).

Zooming into cities, London and Manchester are the top performers with an average price appreciation of more than 15% annually, while Melbourne comes in a close third.
Zooming into cities, London and Manchester are the top performers with an average price growth of more than 15% annually, while Melbourne comes in a close third.

Looking more closely at specific cities in the top two property markets (UK and Australia) shows us that property in London had the highest average annual return (22.0%), followed by Manchester (17.6%), and Melbourne (17.4%).  Read more about how the UK property market has performed since Covid-19 here.

For the purpose of our community who are mainly based in Singapore and Malaysia, we have also compared these to the appreciation of Gold, US Bonds, fixed deposits and several stock markets like the KLCI and the STI in the below table:

The highest performing property markets, compared to the stock markets (with also the addition of U.S. Bonds & Gold)
The highest performing property markets, compared to the stock markets (with also the addition of U.S. Bonds & Gold). Sources: data.gov.sg, URA, HM Land Registry, data.gov.hk, Economic Research Division, Federal Reserve Bank of St Louis, Abelson & Chung, MHPI & RBNZ, ABS, STI, KLCI, FTSE, macrotrends.net, CSIPROPResearch

The top half of the table is dominated by property, whilst stock markets in the UK, Malaysia and Singapore sit at the bottom. Stock markets tend to be more vulnerable to economic shocks, and the few downturns in past years have affected the overall performance of the markets.

On the other hand, house prices are largely affected by the economics of supply and demand. What’s apparent from our research is that in fast-growing cities with strong demand for housing, there is tremendous growth in house prices. London, Manchester and Melbourne which have the highest price increases, are also the fastest-growing cities in their respective countries.

Even Gold, which had a significant boost due to the impact of COVID-19, has not performed as well as the average house in top growth cities. The price of Gold typically increases when economic conditions worsen. 

That said, the returns from Gold is directly proportional to a ‘fixed’ price at any given moment. However, with real estate, savvy investors who buy strategically (the right location at the right price and with the right access) can enjoy returns that outperform the national average.

Conclusion: Why Property Investment?

Clearly, property property investment is one of the best avenues that investors should consider. Just buying the average house in a good market can already give you one of the best returns, compared to other investments. Imagine the potential for even better returns if investors buy strategically and do in-depth research to find the best locations to invest in.

Property markets where demand is high and supply is low, especially fast-growing cities, have the highest potential to perform. Investors should take a good look at these to get the best bang for their buck.

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READ  UK Property Outlook 2016

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By Ian Choong, Edits by VP

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