Time to put reason before emotion

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Property prices are showing early signs of stabilising in some major developed countries and, in other markets such as China, are even booming. This is an environment that offers considerable promise, although tight credit conditions will continue to hinder investors’ ability to take advantage of these opportunities.

The Barclays Wealth view 11 of 15 Who is investing in property 9 of 15

Residents of the United States, please read this important information before proceeding

Please read this important information before proceeding.

The survey showed that high net worth individuals in most markets around the world are cautiously increasing their allocation to property – or at least maintaining their current allocation – although they recognise that prices may still have further to fall in the short term. These findings and the opinions of our panel emphasise the need to be highly selective with property investments, and to remember that the asset class should be regarded as a long-term investment, not a source of quick gains.

Institutional investors understand that property is a long-term investment and that transactions are expensive and take time.

Most investors in our survey currently focus on property in their home country, no doubt because it feels familiar to them, and because information about local markets is more readily available. But when investors do look outside their own countries of residence, most consider the US to be the most attractive property market, followed by China, the UK and India. This is an interesting and complex mix of established and emerging markets. Two of them (the US and UK) have witnessed steep falls in property prices in recent years and face a long-haul recovery, whereas China and India are expected to deliver rapid economic growth that in turn should fuel demand for property.

There is always a danger with property investment – at least in the case of residential – that the heart can rule the head. Emotional attachment can get in the way of sound decision-making, leading investors to buy assets because they like them or hang on to them for too long when circumstances change. When investing with financial goals in mind, investors must disassociate themselves from these emotional attachments and take an objective view.

This is especially important when it comes to diversification, both in terms of overall portfolio diversification and diversification within the property component. In order to spread their risk and gain access to a wider spectrum of property markets, investors should carefully consider their options, either by taking a more international view, adding commercial property to their portfolio or investing indirectly through funds, which less than a third of investors currently do.

Investors must be careful to avoid overexposure to an asset class that in practice has been proven to be vulnerable to booms and busts. So while it can be tempting to seek refuge in property as a safe haven, especially given the current widespread mistrust in complex financial products, investors must remember that the tangibility of bricks and mortar and their apparent promise of stability can sometimes prove illusory.