Adam Neale (Columnist)
AS financial analysts and market experts debate what shape the post-coronavirus economic recovery may follow, drawing on letters like V, U and W to trace possible trajectories over the coming months and years, there’s one letter pundits are missing from their alphabets: P for property.
Stocks, unit trusts and long-term bonds have traditionally accounted for the lion’s share of many personal investment strategies, attracting the hard-earned savings of most people planning for the future, however uncertain that may be. But savvy investors know the best way to protect a portfolio is to diversify risk, just in case the unthinkable happens.
As COVID-19 is showing, that can occur all too fast. The spread of the pandemic has seen international stock markets suffer knock-on symptoms, with heavy losses sustained by indexes and individual investors.
Property markets have also been affected, as some, including Spain, have been forced to stop doing business for now. But a number of key differences between shares and real estate make the latter a much safer bet over time.
Making the most of leverage
While it is hard to find financial institutions willing to let you borrow money to buy shares, you can usually purchase property without personally having most of the asking price in your account. Just ask your bank. Mortgages allow those eligible to finance up to 80% of the cost of a property against its residual value and pay off the interest and outstanding capital over a longer term at historically low interest rates.
If you mortgage a property for use as a primary residence or holiday home, you’ll gradually pay off the amount lent and will eventually own your home outright. And if you finance the purchase of investment properties via mortgages, you’ll have the benefit of tenants making payments against your loans before ownership, and income, reverts to you.
Hedging against inflation
Once the worst of the coronavirus pandemic has passed and economies around the world start to recover, some analysts are forecasting that inflation could spike as, amongst other reasons, rising demand from consumers drives up prices. Bonds are seen as being most at risk from inflationary trends, as the promise of security often obscures low guaranteed returns, impacting investors’ purchasing power over time.
Real estate, on the other hand, has proven to be a solid hedge against inflation. Property that provides income from renting can be pegged to market rates so, as rental prices rise, your income follows suit. At the same time, while property values do fluctuate in short-term cycles, in the longer term, investments in bricks and mortar tend to be worth more than even the best-performing stocks over time.
The real value of real estate
Unlike shares and bonds, a property exists in the real world. That means you can enjoy it personally – as a place to live full-time or spend your holidays and leisure time – or rent it to other people for their use. Either way, you get a guaranteed return from your investment. And the longer you hold on to it, the more you’re likely to see it appreciate in value.
If you’re lucky enough to own a home on the Costa del Sol, in one of the in-demand locations like Estepona, Marbella, Benahavís and Sotogrande where we operate, you already know how rewarding an investment in property can be here, in the long-term as well as every day you spend in the sun. If you’re interested in adding real estate to your investment portfolio, contact us for more information.
Email Adam on adam@terrameridiana.com, call +34 678 452 109 or +34 951 318 480 (office)
