Wednesday, 7 November 2012

My thoughts on asset classes (2: Property)

Based on my experiences to date, i'm quite positive about the benefits of property as an investment. The main benefits i see are:
- The potential for generating both yield and capital gains.
- The ability to protect against general inflation.  I would normally expect the value of property and/or rents to rise in an inflationary environment, although i'm sure there are many examples where this hasn't been the case.
- Protecting against future property price rises (if you have the need to buy a home in the future). Getting on the property ladder early can help manage a future risk that values might spike up when a future purchase is desired.
 However, there are also some downsides:
- High transaction costs, such as taxes, agency/legal fees
- High entry price. Generally a large financial commitment is needed, with accompanying debt.
- The risks of vacancy, problem tenants, or maintenance costs.

For me, similar to any other investment, the decision to invest in property would ultimately come down to price, value and research.  Priorities would be to minimise the chance of vacancy (sensible location & rent levels), and  aim for positive cash flows, with rental yields exceeding financing costs. The HK property market isn't particularly attractive at the moment with high valuations, low yields & recent government cooling measures including high purchase taxes.  I may consider investments in the future though.

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