My wife and I have recently sold the house she purchased in Dublin 13 years ago – for €5000 less than she paid for it.
Although she bought it as a home and not as an investment it made me wonder; what risk and return characteristics Financial Planners should really assume for a property investment.
I’ve read several posts recently stating that property prices will “probably” increase by x% over the next few years, but with little evidence to support the expectations.
I have therefore collected the following historic data:
Irish Residential Property since 1970
Irish Commercial Property since 1975
UK Residential Property since 1983
I have presented the data from the perspective of an Irish Financial Planner who may have clients investing in both the UK and Ireland taking account of currency fluctuations as well as movements in the underlying asset.
Irish residential property
Between January 1970 and the end of December 2015 the annual growth in Irish Residential Property has averaged 8.66%pa Nationally and 9.25%pa in Dublin.
However, over the same period inflation has averaged 5.86%pa suggesting that the real return for residential property has been around 2.8%pa Nationally and 3.39% in Dublin which is slightly higher
than my findings for average residential property in the UK since 1983 (2.5%pa real return).
Equally, this extra real return above inflation wasn't the norm.
For example, during the 1970s and 1980s, real house prices nationally lagged behind the cost of living up to the end of 1987.
Thereafter, Ireland experienced a property boom, bust and subsequent recovery which bear no relation to the experience of the previous decade.
From a risk/return perspective, National Average Property in Ireland increased by approximately the same amount as Global Developed equities over the full period growing nearly 55 times. However, we know that the 1970s were a particularly bad time for equities and it wasn͛t until 1988 that an equity investment caught up with the average National Property.
An analysis of the quarterly data allows us to calculate the maximum drawdown in order to obtain an impression of how risky Irish Residential Property is relative to, say, an investment in equities.
I conclude that the maximum drawdown for Irish Property is of the order of magnitude of that of Global Equities. In other words, there is no free lunch in investing. The equity-like returns of Irish property are associated with similar equity-like drawdowns.
I intend to publish the complete findings in my forthcoming book but hopefully readers of ask about money will find this initial snippet interesting.
Sources: CSO, halifax house price index UK CPI, MSCI
Although she bought it as a home and not as an investment it made me wonder; what risk and return characteristics Financial Planners should really assume for a property investment.
I’ve read several posts recently stating that property prices will “probably” increase by x% over the next few years, but with little evidence to support the expectations.
I have therefore collected the following historic data:
Irish Residential Property since 1970
Irish Commercial Property since 1975
UK Residential Property since 1983
I have presented the data from the perspective of an Irish Financial Planner who may have clients investing in both the UK and Ireland taking account of currency fluctuations as well as movements in the underlying asset.
Irish residential property
Between January 1970 and the end of December 2015 the annual growth in Irish Residential Property has averaged 8.66%pa Nationally and 9.25%pa in Dublin.
However, over the same period inflation has averaged 5.86%pa suggesting that the real return for residential property has been around 2.8%pa Nationally and 3.39% in Dublin which is slightly higher
than my findings for average residential property in the UK since 1983 (2.5%pa real return).
Equally, this extra real return above inflation wasn't the norm.
For example, during the 1970s and 1980s, real house prices nationally lagged behind the cost of living up to the end of 1987.
Thereafter, Ireland experienced a property boom, bust and subsequent recovery which bear no relation to the experience of the previous decade.
From a risk/return perspective, National Average Property in Ireland increased by approximately the same amount as Global Developed equities over the full period growing nearly 55 times. However, we know that the 1970s were a particularly bad time for equities and it wasn͛t until 1988 that an equity investment caught up with the average National Property.
An analysis of the quarterly data allows us to calculate the maximum drawdown in order to obtain an impression of how risky Irish Residential Property is relative to, say, an investment in equities.
I conclude that the maximum drawdown for Irish Property is of the order of magnitude of that of Global Equities. In other words, there is no free lunch in investing. The equity-like returns of Irish property are associated with similar equity-like drawdowns.
I intend to publish the complete findings in my forthcoming book but hopefully readers of ask about money will find this initial snippet interesting.
Sources: CSO, halifax house price index UK CPI, MSCI
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