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Gearing is the Key to Property’s Attractions Back  
John Moran examines some of the main factors behind the continuing buoyancy of the property investment market
The property investment market has continued to perform strongly this year, driven in part by the continuing mistrust among investors of the world’s stockmarkets after three years of falling values.

The stockmarkets may be showing increases across the board since their lowest point last spring but many investors remain to be convinced that the rises are not just another false dawn in a continuing bear market. Meanwhile, the safe haven status of investment property continues to be a powerful attraction.

Property’s attractions, however, are not just as an alternative to potentially volatile stockmarkets: its attractions are based on a number of positive factors in its own right which can make a huge difference in terms of the end results that can be achieved.

The most notable of these attractions is the fact that property is effectively the only asset class which can be geared. The actual investment in property is typically only 20% to 30% of the cost price, the rest being borrowed against the property itself.

With low interest rates, the cost of financing property investments is a powerful spur to the market, even in a period of weak occupational demand in some sectors. The effect of gearing also explains what may seem like high prices and low yields for property investments.

A yield of 5%, say, on the purchase price of a property turns into an altogether more attractive yield if calculated as a percentage of the amount of an investor’s money actually put into the purchase. Thanks to leveraging, and with rents and capital values increasing over time, the ultimate returns can be considerable.

Add that to the benefits of a greater sense of stability and it is not difficult to see why property has been such a popular investment in recent times.

John Moran is investment director of Jones Lang LaSalle in Dublin and can be contacted at +353 1 673 1600

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