Is real estate the best asset class for 2022?

According to a recent survey, approximately one-third of UK adults agree that property will be the best performing asset in 2022, with investors favouring it over stocks, cash and cryptocurrency.

Property investment continues to play a huge role in sustaining the economy of the United Kingdom. Citizens of the UK are the most likely in the world to invest in bricks and mortar, despite the recent raising of the base interest rate.

What asset class is real estate?

When it comes to investing, there are five main asset classes. These can be broken down as follows:

• Alternative assets: physical, tangible assets - this is the real estate asset class.

• Stocks: shares or equities issued by companies.
• Fixed income investments: a more complex way to describe debt - things like government bonds can be considered fixed-income investments.
• Cash (and equivalents): Physical money or savings kept in a bank.
• Futures: A financial derivative where parties agree to exchange an asset at a predetermined price in the future.

Alternative assets (also known as real assets) are physical items with an intrinsic worth on account of their properties and substance. Aside from real estate, some other examples of alternative assets include precious metals (like gold and silver), natural resources (oil and gas), equipment and commodities.

Asset classes UK: why do people invest in the real estate asset class?

Investing in UK property is seen as relatively low-risk in comparison to investing in other asset classes like stocks and shares. During the coronavirus pandemic, for example, share prices dropped across almost every industry, while property prices remained comparatively stable.

That’s not to say there aren’t risks involved with investing in UK property - however, many investors feel that the risks are somewhat mitigated by the high demand for housing and predictable house price fluctuations. In addition to this, the real estate asset class provides investors with an opportunity to diversify their portfolio, on account of house prices often moving in the opposite direction of financial assets like stocks, shares and bonds.

Real assets are generally more stable than financial assets, although they offer less liquidity. This means that while you’re more likely to make a steady profit from property, you won’t be able to free up the funds locked into your investment as quickly as you might do with shares or other financial instruments.

Are real estate investment trusts considered alternative assets?

Real estate investment trusts pool the finances of several investors to purchase property. These trusts generate a steady stream of income for their investors, although they don’t offer much in terms of capital appreciation. Instead, real estate investment trusts offer high liquidity (like stocks). While they deal with tangible assets, REITs aren’t strictly considered as an alternative asset class.

Is real estate the best asset class?

No two investors are the same, and personal preference will ultimately play a role in whether you consider real estate as the best asset class - but there’s a reason why almost all successful investors diversify their portfolios with various types of property. Here are just a handful of reasons why real estate can be considered the best way to invest in 2022:

Buy-to-let properties generate steady income all year round

Buy-to-let investment is a great idea if you’re investing for the long haul and not simply out to make a quick return. Instead, when you become a buy-to-let landlord you can expect to enjoy a regular monthly income from rent. Savvy investors often use rental income to fund further property acquisition, thereby growing their property portfolio over the years.

However, before investing in a buy-to-let property, it is important to ascertain whether the project will be profitable. Apply the 5% rule to any potential purchase, and be certain to use the PropertyData free rental yield calculator to estimate whether an investment is likely to provide a healthy return.

Real estate appreciates in value over time

In the United Kingdom, the consensus expert forecast is for around 3% growth per year over the next five years. When you compare these sorts of gains to the small figures achieved by simply allowing your money to stagnate in the bank, there’s no real comparison. Real estate is the way forward for smart investors - but making the right investment is key to enjoying healthy returns.

You can get started with property investment without huge upfront sums of cash

Real estate doesn’t have to tie up lots of cash. By putting just 20% down on a buy-to-let property, you can utilise a mortgage to leverage your asset and continue to grow your investment.

What is the safest real estate asset class?

There are two main types of real estate asset classes:

• Residential: domestic properties where people live, such as houses, flats and apartments.
• Commercial: properties from which business is conducted, such as offices and retail space.

While both can be considered safe investments, the changing face of the high street coupled with an increased demand for housing means that residential property is the best real estate asset class in 2022. In fact, if you look at most high streets in the UK, you’ll notice commercial buildings being converted to residential - with not much traffic going in the opposite direction.

The main takeaway is that demand for housing, and rental housing, in particular, has never been higher in the UK. In addition to this, many areas in the North of the country are undergoing regeneration which has the knock-on effect of attracting skilled individuals away from the traditional commercial hubs of Central London to places like Manchester, Leeds, Liverpool and Newcastle. Each of these cities offers high rental yield and capital appreciation, making them the ideal areas to invest.

Maker smarter real estate investment decisions today

Whether you’re new to property investment or looking to extend your individual portfolio as a buy-to-let landlord, PropertyData offers a wealth of invaluable tools and analytics to help you make more informed investment decisions. With a free two-week trial, you can keep up to date with property prices by postcode, seek out investment opportunities and use historical data to your advantage. Why not sign up today to find out for yourself?