Why Diversify Your Property Investments?
Investing, in anything, requires diversification to maintain stable regular income. The recent RICS’ residential survey highlights the mixed regional performance of house prices and emphasises the need for diversification in property investment.
Diversifying is the exact opposite of ‘putting all of your eggs in one basket’.
The idea of investing the vast amount of your savings into a single company on the stock market sounds preposterous! A single stock is likely to see wild fluctuations in its valuation. However, if a wide array of stocks and shares in different markets can be purchased, this substantially reduces volatility for the investor.
Similar to stocks and shares, we view property as an asset class that requires diversification. Purchasing a traditional buy-to-let property as an investment makes little sense in the current climate. For an everyday investor, diversifying investments across multiple property regions and sectors is challenging for three reasons. First, average house prices have been consistently rising faster than average earnings – this makes the prospect of purchasing vast swathes of property (needed to diversify) an impossibility for ordinary people. Second, it is now harder than ever to build a portfolio of property on your own due to recent rises in stamp duty and the impending reduction of tax relief on buy-to-let mortgages. Third, investing in property in different geographical areas, to achieve diversification, can be difficult to manage and administer.
RICS’ latest residential survey highlights the mixed regional performance of house prices. Interestingly, this survey reaffirms our previous blog’s suggestion that house price growth varies substantially in different regions as a result of different variables. Further highlighting the need for investors to diversify across property market regions and sectors.