Real Estate Assets vs Passion Investments

Savills have recently compiled a quirky report which compares the performance of traditional property assets with non-property assets...

Savills have recently compiled a quirky report which compares the performance of traditional property assets with non-property assets such as classic cars, art, furniture and farmland over the past 25 years.

High net worth individuals (HWNI) are reported to allocate an average of 16.9% of their investments to Art and 19% to luxury collectibles including classic cars and the report lifts the lid on where the smart money has been invested over the last quarter of a century.

Savills used their own indices and those from Art Market Research and Nationwide to compare the performance of 'passion investments' including the Art100, Old Masters, classic cars, 18th century furniture, UK property, prime central London property and UK farmland.

chart showing asset performance over 25 years

The research shows, unsurprisingly perhaps that the strongest growth has been seen in prime central London property prices which over the last 25 years has recorded a massive increase of 523.1%, driven mainly by global wealth attracted to the UK as a political and economic safe haven.

The Art 100 index produced by Art Market Research shows growth of 200% over 25 years (December 1988-December 2013) which compares with the average house price increase of 205%, showing that art is an attractive hedge against inflation.

18th century furniture was the only asset in the study which experienced a relatively weak performance throughout the 25 years, falling by 5.9% towards the end of the study period. Since 1988, 18th century furniture has maintained its original cost with values falling consistently since 2003 following growth of 66% over the preceding seven years.

The Art 100 index shows as being the most volatile of the assets studied. Over the study period, the index recorded the second largest annual increase of 71.5% in March 1990 but also the largest annual fall of -53.6% just two years later in 1992.

Classic Cars Best Performers since 2007

Looking at the assets performance since the financial crisis, the biggest growth has been in the classic car market, recording an increase of 134.9% since the peak of the housing market in September 2007. Prices in this market have not fallen since 2006 showing the asset's strong resilience to recession.

Farmland has long been considered a safe haven asset and hedge against inflation and prices have historically performed well during economic downturns. According to Savills' data, average values have not fallen since 2003 and have increased an average of 105.2% since 2007.

In a global survey published by Capgemini and RBC Wealth Management, it was shown that 20% of HNWIs' assets are in real estate, excluding their primary residence. European HNWI investor appetite for property is at around 26.7% and those in Latin America, 30.1%.

The report does illustrate very effectively how non-property assets of a certain calibre can be as valuable over the long term as more traditional assets like real estate. However, as with all investments it is important to assess risk levels before investing and in markets such as art or classic cars, there are always risks of fake pieces and hidden mechanical horrors, perhaps making it a more appropriate area for investors with money to burn.

- Monday 23 June 2014

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