Do not put all investment eggs in one property-shaped basket

Granite City house prices highlight the risks of property investment, says Barry O’Neill, of Carbon Financial Partners

After a prolonged period of seemingly unending growth, Aberdeen property prices have taken a bit of a battering over the past few years.

The north-east’s love affair with property as an investment feels more fragile now.

Some investors who bought flats for their capital growth potential and as a source of income thought property values and rental income could only ever go in one direction – up.

But the recent economic downturn in the north-east has contributed to prices falling and rents being revised downwards.

The glut of flats on the market makes turning your investment into cash within a reasonable timescale a much more difficult task than it used to be.

As if this isn’t bad enough, the additional tax burden in the form of the land and buildings transaction tax additional dwelling supplement means buyers of investment properties in Scotland now pay an extra 4% of the purchase price in tax.

Regulations for landlords have also been toughened and interest relief for mortgages taken out to buy second properties will be restricted to the basic rate of income tax from April 6 2020.

None of these things in isolation mean property is not an appropriate form of investment.

Collectively, however, they do make it far less attractive than it once was to be a landlord, particularly in Aberdeen, and help to underline why property shouldn’t be your only investment. Being diversified is key. If you already own property as an investment, complementing it with the other main asset classes like bonds and shares helps to reduce the variability of your overall return.

When one asset class is struggling, the others should be doing better.

Poor returns from property in 2019 would have been perfectly complemented by the other main asset classes.

Global bonds delivered a return of 6.5%, while global shares delivered 22.7%, according to FE Analytics.

If you really want to have exposure to property as an asset class, real estate investment trusts (Reits) allow you to own shares in a diversified global portfolio of highly-liquid, listed property companies.

Reits are valued and traded daily so you can enjoy the returns from property as an asset class in a much more liquid way.

Remember, as in all walks of life, too much of a good thing can be dangerous.

TRENDS: Barry O’Neill, left, said it is now far less attractive to be a landlord, and investors should diversify