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29 Aug 2012

UK Housing Investment May Offer 3% Annual Return In 2012-2025

Investment in housing in the UK could bring a projected real return of about 3% a year between 2012 and 2025, according to a new report by PwC, cited by PropertyWire.com.

According to PwC's analysis, which extends previous research by comparing potential investment returns for housing, net rental income included, against other assets such as stocks and index-linked gilts, housing offers a significantly higher risk than index-linked gilts, but the risk as well as projected return levels are lower than those for equities.

The median value of the total real return on housing, before tax, is estimated to average around 3% a year between 2012 and 2025, with a 90% chance of this being between -1% and 7% a year over the period.

In comparison, at present, the real rate of return on index-linked gilts is around 0.5% a year, relative to CPI inflation, if they are held until they mature in 2025. Meanwhile, PwC's report estimates that average real returns on equity are likely to be about 5.5% a year in the 2012-2025 period. A 50/50 mix of index-linked gilts and equities is expected to offer a real return of around 3% a year with a 90% confidence interval of about -2% to 8%, the analysis shows.

PwC's chief economist John Hawksworth said the report suggests that potential housing returns in the period to 2025, while still being below the level seen by many over the past decades, could be broadly in line with a balanced mix of index-linked gilts and equities in terms of both risk and projected return.

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