Is bricks and mortar the way to go when it comes to investment, or do other luxury assets have the edge? Words: Karen Tait
With the gap between property prices in London and the rest of the UK growing ever wider, is investing in bricks and mortar the way to go or are there better vehicles for your money?
In a report by Savills of top investment assets over the past 25 years, prime central London (PCL) house prices recorded the highest increase across all asset classes, with values rising by a huge 523%.
In comparison, the average return for a house in the rest of the UK has been 205% – about the same as investing in art, with the Art 100 index recording growth of 200% over the same period.
Farmland is another safe investment, even in a recession – average values have not fallen since 2003 and have increased on average by 105% in the six years since September 2007.
‘Over this 25-year period, there has been a huge variation in the performance of individual asset classes,’ explains Sophie Chick of Savills’ research department. ‘The strongest growth has been in PCL house prices. This reflects the fact that demand is primarily driven by global wealth attracted to a political and economic safe haven – although culturally diverse, this also has a strong investment track record.
‘These attributes have been heightened over the past eight years as global wealth has increased significantly, resulting in house prices in central London notably outperforming all other areas of the UK.
‘As the search for safe stores of wealth continues, a variety of asset classes will benefit,’ she adds. ‘Investment credentials are only part of the picture; the amenity enjoyed by the owners of art and property is far less tangible but potentially more valuable.’
There’s no doubt that London’s safe haven status has been a catalyst for driving prices up. ‘It’s of little surprise that global geo-political tensions in a particular country typically result in an influx of buyers from that hotspot,’ comments Cory Askew of Chestertons. ‘The reason is two-fold: the historic political and economic stability of the UK, and then more specifically, the historic stability of the London property market. Art, cars, and jewellery, whilst sound investments, do require a degree of speciality and knowledge that is less intrinsic than the simplicity of property.
‘Whatever one’s investment tastes, the risk is generally mitigated by the amount of time the asset is held,’ he adds. ‘Naturally, therefore, if your asset can generate hard cash (i.e. a rental income) whilst appreciating over time, your risk is further mitigated.’
Stephanie McMahon, head of research at Strutt & Parker, points out that ‘property is a relatively illiquid asset which is expensive to transact; due to the undersupplied market it generally performs best under a longer term hold.
‘London residential property has performed extremely well, even in the recent past,’ she adds. ‘Looking at the IPD UK Residential Investment Digest in 2014, we can see that annualised over three, five and 10 years, Inner London Total Returns have generated growth of 11.6%, 12.5% and 11.0% respectively.’
What if you wish to diversify your investments – and have a little fun along the way? Petrolheads will be delighted to learn that the ‘real winners’ over the past six years from September 2007, according to Savills, have been classic cars, recording a staggering growth of 135%.
The Knight Frank Wealth Report 2015 also lists classic cars as the top investment. ‘Classic cars have been the strongest performer over both the long and short-term, with the value of the HAGI (Historical Automobile Group) Top Index rising by an astounding 487% over the past 10 years and growing 16% in 2014,’ says Andrew Shirley, editor of the Wealth Report. Hot on their heels – or should that be wheels – are diamonds and art, both with annual growth of 15%.
When it comes to who’s spending the most on these luxury items, the UK tops The Wealth Report’s new Big Spenders Index, highlighting the importance of the UK for luxury brands, which sold over £8bn of goods last year.