Why Invest So Little In Property?

The Questor column in the Telegraph outlines how property is “the best income asset”. Yet they allocate only a small portion of their model portfolio in income producing property and companies that own it.

Why?

Without being willing to pay to peek behind the paywall I can only guess. But there is good economic reason.

Which is that we all invest far too much in property already. That thing you’re living in? That’s an investment. Perhaps it shouldn’t be, the world might well be better if it were the mere consumption good it should be – and used to be. But we’re in the world we’re in, not one of perfect rationality.

The secret to a useful portfolio is exactly why we do have a portfolio of investments. Diversification. We wish to have a selection of investments across different actors in one sector and across sectors. That way if The Chairman makes the idiot nephew the CEO (or employs the Senior Lecturer as a consultant) and blows the entire company that only affects a portion of our pension, not the whole thing. Or, more realistically, if digging fertiliser out of Yorkshire proves non-viable then again, it’s a portion, not the whole, of our pension that evaporates.

We Brits have huge chunks of our total investment position in residential property. This is long before we start to consider buy to let. Therefore the rest of our portfolio shouldn’t be in residential property.

OK, sure, a pencil sketch, but that’s one good reason.

With an interesting corollary. Those who are renting – by choice or not – should have a higher weighting of residential property companies in their portfolio than those owner occupying. But again, we’ve that not perfect rationality at play here. Those who are renting rarely have savings to be invested. Because the first thing an Englishman does with any spare cash is go buy a house.

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“the mere consumption good it should be – and used to be.”
Was it ever? Owning land has always been about having an income, farm it yourself, or rent it to a farmer, or lease it to a builder. (Schedule A tax on owner occupiers was only abolished in 1963[*]) Property always has been an investment, our problem is that it has become a speculative investment, an anticipated ‘sure bet’ capital gain rather than an income.

http://www.legislation.gov.uk/ukpga/1963/25/part/II/chapter/II/crossheading/abolition-of-schedule-a-tax-and-taxation-of-rents-etc/enacted