Assetz® News - Better prospects ahead for investors?

Better prospects ahead for investors?

18th August 2009 |

For many investors, the way to invest in residential property is clear: Apart from the obvious need to ensure they are buying the right kind of residences and in the correct locations, the ultimate aim is to make a healthy return over the long run. A short term gain has been impossible over the last couple of years and the lesson that can be taken from this is that wise buyers should look to gain the benefits of economic and property market growth over the long term, ironing out periods of difficulty.

Over the past couple of years, of course, there has been a pronounced and deep time of trouble, which has brought decline in both the wider economy and the property sector. Investors have been looking both to ride this out and wait for a time when they can make new acquisitions as the horizons start to brighten up.

With the market apparently picking up according to various indicators on price, lending and demand, landlords may be further encouraged by any hint that Britain will soon be out of recession. Professor Iain Begg from the European Institute of the London School of Economics has said that the exits from recession made by France and Germany last week were evidence that government stimulus packages in those countries have worked, adding that while higher personal debt and a larger financial sector have prevented Britain returning to growth as soon, this outcome across the channel does at least offer good reasons to believe that better times are around the corner.

Indeed, Professor Begg stated it could be just "weeks" before Britain is out of recession. However, he added the caveat that the recovery is likely to be slow, with low growth being insufficient to prevent further rises in unemployment. This, he predicted, will go on rising for the rest of the year.

Thus, he concluded: "We can get the champagne out the cellar but it might be a bit early to be taking the corks out."

Such an analysis may fit well with the approach of long term investors, who will reason that slow growth at first is not a problem as it is not in 2009 or 2010 that they will look to cash in their assets, but years hence when the economy will have had more time to gain in strength.

In the meantime, senior economic advisor to the Ernst & Young Item Club Hetal Mehta has predicted that interest rates will stay at their record low rates for some time, reasoning that there is "no chance" of monetary tightening - and indeed a good case for more quantitative easing - in the light of the comments by Bank of England governor Mervyn King this month that he expects to have to write a letter in due course to the chancellor explaining why inflation is below target.

Ms Mehta stated there is a "strong chance" that rates will rise quickly once the quantitative easing and loose monetary policy starts to feed into inflation. That may add to the costs of buy-to-let mortgages for those investors who have them. But it may also be something that arises when the economy has less spare capacity - a consequence of increased activity that may not just deliver overall growth but also a healthier climate in which the property market could flourish again.