Property and the housing market have long been considered a stable yet lucrative investment strategy. In recent years, the property market has been turbulent, to say the least. This article looks at today’s changing landscape and what it means for investors.
Similarly, gold is another traditional investment asset that can allow for wealth protection, creation, and security within high inflationary environments.
This is not just an example, but a signifier of a much broader shift currently playing out in the property market. As of 2022, one-fourth of all single-family homes in the US were owned by investment companies rather than families or individuals. That means the average American citizen has less than a fractional chance of winning a home over investment firms such as BlackRock.
So how do property and gold shape up as investment avenues?
Property – The Changing Landscape
Haven investments have the capacity to maintain or even increase in value during times of economic downturn. They are deemed to be ‘safe’ because their valuation trajectory is not necessarily correlated with ongoing stock market activity or the development of certain geopolitical events. While there is yet to be an investment entirely free of risk, the key is ensuring sufficient stability while also taking advantage of growth over time.
In the case of property, the financial crash of 2007-8 was enough to remind investors that even property, previously thought to be a safe-haven asset, can come under fire in certain, extreme market conditions. With the economic crash still in people’s recent memory, the Evergrande situation in China now threatens to create a domino effect similar to the repercussions seen after the ‘08 crash, or ones of an even higher magnitude.
As for the situation in the UK, the housing dilemma is apparent, but for altogether different reasons. Some property experts have, notably, described the government’s net-zero strategy to decarbonise all sectors of the economy as a ticking time bomb. In all likelihood, property investment is soon to be hit by demands for clean technologies, in a move away from fossil fuel heating systems.
The Case for Gold
Following this pivotal move, gold has increased in value by over 500% in the years since the gold standard was abolished, with central banks making sure that their reserves remain abundant. But it is only now that gold has been digitalised, that it has become infinitely more accessible, making it easier to buy gold in fractional amounts – trade it, and spend it, just like any other currency.
So, let’s compare property and gold in greater detail:
Wealth Protection – Is it inflation-proof?
Asset Valuation & Ownership
When investing in either property or gold investment, it is not financially feasible to simply “break even”. To ensure the investment is worthwhile, the outcome should be a sustained positive cash flow for the investor. Essentially, the cost of owning or controlling the asset, must not be higher than the financial output.
However, as existing homeowners will note, the sale-minus-buy price does not account for the numerous unrecoverable costs consistent with property investing: estate agent fees, mortgage, valuation, stamp duty, as well as maintenance costs for the property. Even for savvy investors, property investment can represent a double sting, with the potential to take money out, rather than add, to your pocket.
In some ways, gold historically featured similar attributes of costly fees for storage and insurance, with the addition of being cumbersome and impractical for daily monetary use – despite its capacity to store value.
However, investment in gold has recently become more accessible to the everyday investor, with the introduction of digital gold.
Another aspect to consider in both property and gold investment is the yield-bearing potential of these assets.
In the case of property or real estate more specifically, the yield-bearing benefit is found by calculating the projected annual return for the property, as outlined below.
Rental yield = Annual rental income / Property value x 100
While this yield is competitive, as mentioned earlier, the annual rental income must be adjusted year on year to account for fluctuations in pricing within the housing market, in addition to maintaining a continual balancing act with inflation levels.
While the yield on the property itself may be passive, this investment strategy is certainly not, requiring a high level of maintenance and attention on the part of the investor.
Is it time to rethink your investment?
It is becoming harder to find growth in the economic environment, as well as protection and liquidity. Clem Chambers comments that this is the real danger of inflation, making economies less stable and more fragile to economic shocks.
In times of high inflation, investors will generally favour yield-bearing assets, to offset the process of currency devaluation and the rising prices of goods and services.
Gold, which has been discussed at length, did not previously offer investors a yield, so many neglected to consider its stabilising effect on a portfolio, despite its historical appreciation and positive performance in inflationary environments.
Paying no extra charge on storing their precious metals, insurance costs or account fees, users took home a yield on their gold investment, in addition to the asset’s significant appreciation over the past year.
So, in the context of the current economic and geopolitical turmoil and the turbulent property market, could gold be an option worth considering?
Thinking about gold investment?
This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.