Is UK property a better investment than stocks and shares?

August 8, 2024

The global stock markets suffered from serious instability this week and sent the value of peoples shares tumbling overnight. Fears of a recession in the USA triggered a major sell off and the value of stocks was reduced across the world. The problems began in Japan where the Nikkei fell sharply and the ensuing panic spread around the world overnight affecting Europe and America.

The Japanese market has since rallied and the signs are that other markets could do likewise soon. However, regardless of whether the stock markets recover to their previous levels quickly, and even go on to resume their growth, the whole incident underlines that stocks and shares can be a highly unpredictable investment choice.

That leads to the obvious question: What are the alternatives for investors who want a more stable investment?

UK property is one of the most popular and lucrative investment markets in the world for good reason, but is property a better investment than stocks and shares? We at The Prestbury Advisory have compared some key features of both investment types here to help investors make an informed choice.

‍

Long-term stability of property vs stocks and shares

The nature of property is fundamentally different to investing in stocks and shares. On the one hand, you have a bricks and mortar asset that you can see and touch; on the other hand, stocks are a share of a company which exists on paper rather than in the real world.

Stocks are an intangible investment, and that leads to greater potential for unpredictability. A company could go bust, or the global economy could see a big downturn as happened this week. In either case, your investment will be affected and sometimes destroyed by factors which are completely out of your control.

Property on the other hand is tangible and fulfils a real-world purpose. No matter what happens to the economy, people will always need housing, and that fact means that property holds its value in the long-term.

There is also not enough property to go around, creating a scarcity which upholds property prices and creates competition in the market which increases them. Furthermore, construction rates in the UK are so low that there is no chance of enough new homes being built to meet demand.

According to EPC data, just 231,000 new homes were built in 2023. That’s a 9% annual fall to the national annual target of 370,000 new homes announced by the government this summer. It also means that the total national deficit stands at 4.3 million homes according to the Centre for Cities. In fact, to provide enough homes to fill this hole, the target would need to be 654,000 new homes built each year for the next decade.

That makes property a stable, profitable investment option with limited risk of losing value in both the short- and long-term. Compare that to the volatility of stocks and shares and it’s easy to see why many prefer property.

‍

Is property a liquid asset?

One area where stocks and shares can be more appealing than property is when it comes to liquidity. It is easy to cash out of the stock market quickly and release cash when you need it, making it a highly liquid asset.

However, while it is not as quick to release capital appreciation built up in property, investing in housing comes with a dual income stream that means you are earning on a monthly basis through rental income.

Rents themselves are growing all the time. In 2023, a record average rental increase of 9.6% was recorded by the Office for National Statistics, with the busiest markets like Manchester, Birmingham and Liverpool seeing rises much higher than that.

This year, the average rent is increasing 8.6% year-on-year marking another strong year for rents, and ensuring that property investment continues to deliver high, growing monthly returns to investors.

Finally, while it is true that you can’t sell a house instantly, the time it takes to sell one is coming down as the market goes up. The Bank of England base rate has been lowered and that is expected to lead to a “surge” in activity starting this autumn and continuing into next year according to analysts like Savills.

Lower interest rates lead to more affordable mortgages, and that in turn will bring more potential buyers into the market. There will always be buyers thanks to the aforementioned supply and demand imbalance, but the market has grown 2.1% this year according to Nationwide, and all indications are that it will keep growing in the future.

Long-term projections from Savills indicate that the average house price will go up by 21.6% and the average rent will increase by 18.1% by the end of 2028.

Overall, property offers high returns in a stable and simple way. It’s a hands-off investment that returns monthly income and also a tangible asset that stores capital appreciation which can be released in the future with a sale.

While you might not be able to release your capital as quickly as with stocks and shares, property is also a much lower risk investment that has proven to be resilient in the face of economic uncertainty, a cost of living crisis and even higher borrowing costs.

The underlying supply and demand imbalance in the property market ensures your investment returns will be predictable for years to come – unlike stocks and shares which can lose huge amounts of value due to global economic factors you can’t influence or foresee.

Want to learn more about how to invest in UK property and where you can find the best UK buy to let hotspots? Get in touch with the team today to discover more.

Is UK property a better investment than stocks and shares?

You may also be interested in...

UK Property Market Review 2024

Why investing with the right developer can make or break an investment

The UK property market is still number one for overseas investors