| Investment Real Estate The importance of property in an investment portfolio Property is a stabilising component in most investment portfolios, it appreciates over time due to the effect of inflation, which pushes up cost of building and hence price. In most countries property prices will out pace the rate of inflation. On a one to one basis, the rise in property prices cannot be compared to investments in equity, hedge funds, etc, as the rate of growth in some of these instruments may be exponential. However with properties, we can leverage many times over to stay ahead. For equities, margin financing is also possible, but for only selected blue chips. The high rate of interest charged however will erode most of those gains. Compounded over time, capital gains in property will out strip that of equity. Besides leveraging, property provides a security that other investment vehicles do not in bad times. We do not hear of properties falling to zero value but we do hear that in equities, hedge funds, etc. Property may experience a drastic fall in price as what most Asian countries experienced during the 1997 financial crisis. But over time it recovers a little at a time those lost ground. The same cannot be said for equity related investments, insolvency would normally mean the end of the company unless it is place under protection. In most cases the lost in confidence would trigger a complete meltdown which prohibits any rehabilitation. Having properties in an investment portfolio requires less need for constant monitoring and re-balancing (profit taking and reinvestment of proceeds) of those portfolios. It give an assurance of a value over time irrespective of cycles. |
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