Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Modified Dietz method wikipedia , lookup
Rate of return wikipedia , lookup
Beta (finance) wikipedia , lookup
Private equity wikipedia , lookup
Negative gearing wikipedia , lookup
Private equity secondary market wikipedia , lookup
Financial economics wikipedia , lookup
Early history of private equity wikipedia , lookup
Stock selection criterion wikipedia , lookup
Land banking wikipedia , lookup
Residential Fact Sheet Exploring residential as an asset class: Long term outperformance Total Return by Asset Class 25.0% Total Return (% p.a.) 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% 1 Year 3 Years 5 Years 10 Years Residential Property Commercial Property* Gilts Cash 15 Years 20 Years 40 Years UK Equities Source: Acadametrics, ARLA, IPD, Barclays Capital, Hearthstone. Data up to December 2011 *IPD Monthly Index used for 1987 onwards Market Analysis Residential property has produced the best returns of the last 10 to 41 years. The chart above compares the annualised total returns of residential property against commercial property, equities, gilts and cash since 1971. It is clear from the graph that the long-run performance of residential property is comparatively excellent, producing better annualised returns than any of the more ‘traditional’ investible asset classes. However, in the short-run (one to three years) residential property has beaten only cash. This is not so much due to the poor performance of residential as to exceptional rebound gains in the other asset classes over the last three years. These gains follow huge declines in equity and commercial values during the financial crisis in 2008 and net out to a broadly flat performance over the last five years. In this time period, including the financial T +44 (0) 203 301 1310 E [email protected] crisis, the consistent 4.5 per cent p.a. return of residential property is bettered only by gilts, which outperformed by dint of being the ‘go to’ asset in times of market uncertainty. Over the longer term (10 – 40 years), residential property has shown a much stronger performance than the four other asset classes – and by a significant margin in some cases. In the past, residential returns were governed primarily by growth in capital values without much thought to rental yield. We feel that the residential market is changing. As the stability and long-term growth prospects for rental returns improve, investors will increasingly look to the sector for income with capital growth left as an inflation hedge. We envisage steady – not excessive – increases in house prices over the near term, W www.hearthstone.co.uk | Ref: August 2012/HS004 Residential Fact Sheet Exploring residential as an asset class: Long term outperformance caused by a long-term shortage of UK housing. And these moderate capital gains, when coupled with reliable income returns, represent a compelling investment opportunity in the private rented sector given its very low volatility compared with equities and even commercial property. Whether the investment management industry will seize the chance to expose this asset class to the market on a wider scale remains to be seen. If they do, the result will be a gradual stabilisation of the housing market, a reduction in the importance of high LTV mortgage lending (to prop up capital values with inflows of first time buyers), increased social choice, and a more confident marketplace into which developers can finally get building – whether it be for traditional owner occupier clients or the new wave of residential investment landlords. In any case, we believe that residential property will continue to provide both moderate capital growth and strong total returns in the future over the long term and that it should be represented in the line-up of funds available to investors. Technical Background Residential property is in emergence as an investment asset class. Consequently, there is limited total return data available, and in order to provide a realistic and informative long-term data series, it has been necessary to combine different sources of data. Our residential property total return is comprised of a capital return taken from the LSL Acad house price index (formerly the FT HPI) and an assumed constant gross income return of 5.5 per cent (4.13 per cent net) until 2008. The gross figure has been sourced from a GLA report, produced by Savills, and reflects a 20-year average. The net figure has been calculated by applying a 25 per cent discount to the gross return, reflecting the approximate costs of property management and maintenance in a large-scale residential fund able to benefit from economies of scale. By using a 20-year, rather than the higher 30-year average of 6.2 per cent, we are in fact presenting a relatively cautious view on historic total returns. From 2008, ARLA buy-to-let rent figures (gross) have been used and discounted by 25 per cent. The total return data for commercial property has been sourced from IPD, while equity and gilts data is from the 2012 Barclays Equity Gilt study. Performance has been calculated on a per annum basis, with 2011 (the latest available annual data) as the end-point. Important Information Residential property prices can go down. Information on past performance is not necessarily a guide to future performance. The value of investments in a fund can go down, and there can be no assurance that any appreciation in the value of investments will occur. Residential property values are affected by factors such as interest rates, economic growth, fluctuations in property yields and tenant default. Property investments are relatively illiquid compared to bonds and equities, and can take a significant amount of time to trade. This information is intended for professional clients and investment professionals only and should not be relied upon by retail investors. While all reasonable care has been taken in the compilation of this publication, Hearthstone Investments PLC will not be under any legal liability in respect of any misstatement, error or omission contained therein or for the reliance any person may place thereon. This report is published for general information only and while the report may be helpful in anticipating trends in the property market, no warranty is given as to its accuracy, and no liability for negligence is accepted in relation to figures, forecasts, analyses or conclusions in it. Under no circumstances must any of the content of this report be relied upon for investment purposes. Hearthstone Investments PLC is the parent company of the Hearthstone Investments Group. Regulated business is carried out by Hearthstone Asset Management Limited. Hearthstone Asset Management Limited is an appointed representative of Thesis Asset Management PLC which is authorised and regulated by the Financial Services Authority (114354). T +44 (0) 203 301 1310 E [email protected] W www.hearthstone.co.uk | Ref: August 2012/HS004