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How Do Eurozone Real Assets Perform Relative To The Uk?
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Do real assets perform differently in the UK vs. the Eurozone countries?
Real assets in Britain are preferred by land investors, particularly due to factors of transparency. It’s why homes are cheap in Ireland and expensive in England.
Real assets include land as well as developed property on which structures are built, but also any tangible goods such as mineral resources (oil for example), agricultural commodities and precious metals. In recent years, since the financial crisis of 2008, real assets have outperformed financial assets (stocks and bonds) in most markets around the globe.
For example, due to the finite nature of land in the face of a growing population, real estate is the type of real asset that captures the attention of many investors, not just those interested in land investment. But how land and developed property perform as an asset varies by country and economic system.
For example, The Independent reported in late 2012 that vacation homes in Ireland were attracting British buyers because the value of those properties have cratered since 2007, dropping in price by 50 per cent or more in five years. The steady gain of Sterling against the Euro in the first half of the year made such purchases all the more appealing.
But the prices in the Irish portion of the Eurozone are no indicator of what might be the case in Germany, Spain or even Greece. The banking firm UBS cites the UK for the transparency of all sectors of its real estate markets - office/commercial, industrial, retail and multi-unit to-let residential – as compared to the Eurozone and Australia.
“The UK is the only European market to provide a monthly index,” UBS says in its report “Real estate - All you need to know” (August 2012). This transparency is important to investors, allowing them to make “better-informed and more timely decisions.” It also helps that the UK population is growing by immigration and births, and in some sectors of London becoming a refuge for wealthy individuals from other, financially unstable countries.
Other key points in the UBS report made about real estate assets in the UK versus the Eurozone are:
UK wins over the past decade - “At the aggregated level, Eurozone real estate has out performed the UK market only three times in the last ten years.”
Differences translate into diversification - There is a “relatively low correlation between a diversified UK real estate portfolio and a diversified Eurozone portfolio...as a consequence, a portfolio combining UK and Eurozone real estate should provide higher risk-adjusted returns to investors.”
Lease structure practices vary - “Leases are typically shorter in Continental Europe than in the UK,” but the UK leases are gravitating toward the Eurozone model of shorter lease terms, making them more attractive.
Of course the performance of many real assets between the UK and those countries on the Euro are in great flux at the moment due to uncertain economic factors. Investors continue to gravitate toward these investment alternatives because they tend to outperform stocks and bonds.
Before embarking in any investment, it is wise for the would-be investor to consider the counsel of a personal financial planner. Such investments need to be made relative to risk tolerances of the individual.
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