Long term UK real estate return on investment greater than alternatives

Created: 16 Mar 2023
Strawberry Star Corporate Office

Real estate investment delivered above-inflation returns throughout 2022, outperforming alternatives such as cryptocurrencies with respect to return on investment. Depending on the scale of investment, institutional funds have reaped the rewards of focus on quality robust property assets. Meanwhile other investors, such as buy to let (BTL), have benefitted from steadily rising rental income, and capital appreciation by they investing in the right areas. 

At the REIT level (Real Estate Investment Fund), investing in the UK property sector helped deliver above-inflation returns over the course of 2022. The Association of Real Estate Funds index shows many funds outpaced inflation – which in November reached a 41-year high of 11.1 per cent.

Market analysis by the Alliance Fund indicates the average property investor using the REIT structure saw a return over 12 months of 10.9 per cent. This is the weighted average of funds in the index through to September 2022. 

Furthermore in the last year the UK property market has proven exceptionally stable relative to risky alternatives like cryptocurrencies in return on investment, based on research by Nested. Average UK home values were £285,396 last year, up 10.4 per cent annually. Meanwhile Bitcoin fell 40.9 per cent from $47,000 in 2021 to $27,796 whilst Ethereum dropped 31.5 per cent to $1,938 in 2022.

UK house prices picked up in February from the previous month as recent reductions in mortgage rates helped to stabilise the market, according to the lender Halifax. The average house price rose 1.1% to £285,476 last month compared with January, in a sign of resilience amid hopes the broader economic downturn will not be as severe as previously feared.

It is now cheaper to rent than to buy a home, with Capital Economics research finding mortgage payments at £1,000 per month for the first time, whilst rental payments remained stable at this level too. Mortgage interest grew from £260 a month in 2020 to over £500 in the second half of 2022 according to Bloomberg data. Specialist mortgage financing is predicted to grow from £5bn to £16bn over seven years to satisfy this demand.

Where is the residential mortgage market headed? Certainly 2023 will be the year of consolidation as it adapts to what may become ‘new norms’ but in the near term it will return to growth simply because demand in the UK continually outstrips supply.