fundamental drivers

Property values ​​are driven by basic supply and demand. When ‘facilitated demand’ is high (willing buyers who can access finance) and supply is limited, property values ​​increase, and the opposite is true when demand is weak and there is an excess supply of properties. With this in mind, real estate investments are driven, on the one hand, by global macroeconomic and socioeconomic trends, such as population growth and rising incomes, while, on the other hand, local and regional factors play a role. key role in property values. For example, in 2012, property values ​​across the UK continued to fall or stagnate, except in London, where demand remains high and wealthy buyers can still afford to buy homes, either as a first home or as an investment. . The dynamics of financial markets also play a role in defining property values, as the availability of credit is key to converting demand into actual transactions, and when credit is not available, property prices are likely to drop. properties remain low. Additionally, the general state of an economy, whether locally or nationally, will also affect real estate investments. If unemployment rises, rent defaults will rise, and if wages fall, so will rental yields as tenants push for reductions.

Property investors should keep in mind that the value of their assets and the income they generate depend on a number of supply/demand variables, locally, nationally and internationally, and therefore perhaps the form of real estate investment with The lowest risk is to purchase properties well below market value, add more value through improvements where possible, and dispose of the property quickly to free up capital to repeat the cycle. This eliminates reliance on some of the aforementioned factors, as the Investor does not require capital growth, just a buyer prepared to pay market value and able to secure the funds to do so.

Investment characteristics

Property as an asset class is often used by financial advisors as a risk management and diversification tool, primarily because the asset class shares a low correlation with equity markets, although some correlations do exist. It is difficult to define the planning characteristics of the real estate portfolio in general terms due to the wide variety of sub-sectors that derive growth and income from different market sectors and investment returns are driven by different factors to the next sub-sector.

Broadly speaking, however, all real estate subsectors share a number of characteristics that make the asset class attractive to investors seeking security of capital, income and growth.

Intrinsic Value: Real estate investment assets retain a capital value throughout the useful life of the asset. As long as there are buyers, and the investor is unlikely to lose their entire investment.

Low Correlation: Real estate investments generate income from rentals rather than money market returns, and capital growth is driven by demand. However, each subsector shares at least some correlation with the general economy.

Income: Real estate investments earn income from the rents that individuals or organizations are willing to pay to use the asset or, in the case of natural resource properties, from the sale of the commodities produced, replacing income in times of depressed interest rates.

Capital Growth – Once again, capital growth is driven by facilitated demand. In the case of distressed assets, the Investor may capture inherent value based on their purchase discount.