Should you dump your shares and pile into property?
Deciding which assets to invest in is never easy. Add the shock new US President, the potential fallout from Brexit and the prospect of a US interest rate rise and things become even tougher. As such, many investors may wonder whether it's shares or property that offer the best risk/reward ratio at the present time.
In terms of the long-term outlook for property, it offers significant capital growth potential. Over the next decade, the UK population is forecast to rise at a rate of around three times the number of houses currently being built each year. This means that the demand and supply imbalance that has been a key reason for house price growth in recent years could continue over the long run.
However, in the short run house prices could fall. The effects of Brexit are yet to be fully felt by the UK housing market, since the negotiation period with the EU is likely to cause a much higher level of uncertainty than that experienced since the EU referendum. This could damage confidence in the UK property sector and lead to first-time buyers and investors putting off purchases until a more certain outlook is present. However, greater certainty may not appear in the current decade, since fear towards the property sector may be at its highest when the UK goes it alone in 2019.
Price growth under pressure
Furthermore, higher stamp duty and changes to taxation mean that property isn't as appealing as an investment as it was just a few years ago. And with the pound having weakened in recent months, the necessity of low interest rates may be fading somewhat. A weaker currency could provide a boost to the UK economy as well as higher inflation. In such a situation, interest rates may rise and this could dampen demand for mortgages and cause house price growth to come under pressure.
Of course, shares face risks, too. The election of President Trump could lead to increased uncertainty among investors, since changing policies may impact negatively on the US economy. Furthermore, Brexit could cause the UK economy to experience a difficult period, which could cause share prices to fall. And with a US interest rate rise likely before the end of the year, it would be unsurprising for the UK stock market to experience falls in the short run.
As such, the short-to-medium term could prove to be a good time to buy both property and shares and plan to hold them some time. However, since shares offer greater liquidity, higher diversification and are easily accessible for investors both large and small, they provide the most practical and logical means of generating a high return in the coming years. And with no mortgage required, no tenants to deal with, a lack of void periods, as well as no maintenance charges, it's a wonder why anyone favours property over shares in the first place.
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