Property Wealth, the How’s & Why’s – Part 1
There are many factors and methods of investment that come into consideration when discussing Property Wealth. In this 6 Part series we’ll look at a few.
Part 1 – Liquidity (or lack thereof) of property assets
One major question when considering investment types, is the liquidity of the asset and the equity therein. Property is the most illiquid of the major asset classes. Unlike shares it cannot be traded quickly as it is constrained by much red tape around the asset. Successive Governments have also seen the great value in property as a source of taxation, through stamp duties, land taxes, infrastructure charges etc. This has added to the illiquidity of property, as the cost of transacting an asset is high, and that cost must be recouped from increased capital value.
Having said that, for all its lack of liquidity, property also comes with a level of stability. Stability in terms of an asset that is physical in nature. An asset that is backed by the quality of the tenants that occupy the space and pay rent, on longer term leases, that give confidence in income. This then gives comfort to financiers who are willing to lend higher debt ratios against property than they would against a business or shares.
What this all means is that you should always look at property as a longer term investment. I always ask the question before purchasing a property asset, and especially a development site, if everything turns pear shaped in the economy, would I be willing and able to hold that asset for the next 5 years?
If however your strategy is speculative, and you are looking for quick capital gain, then this to me is the same as gambling. You’ll win some and lose some.
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