Should I hold, should I buy, or sell my property investments?

Which stance are you taking….

You would usually choose to hold property because history has proven consistently that the recorded value of UK property has outpaced inflation significantly for around 1000 years.

Indeed, long-term capital growth since the Doomsday book was written nearly 1000 years ago puts growth at over 11%. Clearly property was traded long before the times of William the Conqueror but I haven’t managed to find any data for this period. In more recent history such as over the last 50 years growth is still above the 10% level annually on average.

The problem, however, is that you don’t know how much capital growth you are likely to get each year or the precise timing of it. Therefore, if you can’t time the returns from it (like most investments) you are more likely to get the benefit from the big jumps in value by staying invested over the long term. I realise this can be difficult when commentators are telling you to do otherwise with stories suggesting that UK property will fall imminently, but the vast majority are usually wrong with their predictions about how much property will rise, fall or the timing of such price changes.

These commentators also frequently get confused over affordability. Many have said that affordability is too stretched for any future capital growth to materialise for every one of the 15 years which I have been conscious in this space. But despite their often flawed hypothesis, prices continue to rise. Some of this can be explained by the fact that we build smaller properties these days to compensate meaning that houses aren’t as expensive as they first seem as people just live in less space.

With the average 3 bed semi of today weighing in at around 850 sqft V around 1200 sqft 30 years ago people are buying less space. More HMOs, shared living, people buying together, longer 35 year+ mortgages and people living with parents for longer along with schemes such as Help to Buy must also go some way to explaining how the value per square foot of UK residential property can continue to rise.

Yes property in central London is unaffordable to the average UK resident. But most property is not in central London or the M25.

The reality is that the supply of UK residential property is constrained by tough planning policies, despite what the government says it still isn’t getting anywhere near reaching its targets for new homes and doesn’t look like it will anytime soon.

Economics dictates that the relationship between supply and demand equals price – if you can’t supply properties in enough quantity,then the price must rise.  Rents, incomes and UK worker productivity are all on the rise therefore making capital values look cheap in comparison.

In relation to investment purchases, you can usually apply debt to UK residential property and get around 70% of your capital back anyway for further investment into other assets meaning the opportunity cost of the money held in the investment is limited in any event.

This also knocks into touch the argument that many commentators make about returns in property being very low once inflation is taken into account. If you have borrowed 2/3 of the money for the investment, it is someone else’s money which has depreciated due to inflation effectively meaning that inflation has eroded the money you owe the bank in addition to any capital repayments which you have made.

In addition to these benefits you also get to keep the rent when you hold meaning that you don’t just give someone else the ability to benefit from the growth but from a stable income stream which often nets in excess of 5% net on most well-sourced residential property investments. Show me how many bond or equity-based stock market funds which can match this.

A key question I ask myself when deciding whether to hold or sell property is what I plan to do with the money afterwards. If the money is being released because I have a great investment opportunity for which the profits are likely to exceed that of my property investments over the long term I may consider it. Yield is usually the biggest driver however if I plan to sell and dont have a vehicle for the money to achieve an investment over 6% hold would seem the sensible option

NB These views are only my personal thoughts and should not be read or taken as formal advice. Always speak to an Accountant or a Financial Planner for investment purposes.

J Godfrey 

Mather Marshall