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Measuring Value

Veteran international investor John Corey comments

Anyone who has been to a property networking event for BTL residential investors will most likely have heard at some point the claim that 'property doubles every 10 years'. While no one can really explain why, cite evidence or a clear study to back this up, many in the property community take it as the gospel truth.

Well, in many ways the doubling every ten years is based on historical data. Various reports that I have seen have just enough data to back up the speculation. The issue for me is how do you really measure value? Second, what is driving the value? Third, is the value reported for the UK as a whole even relevant to your personal investing strategy?

First Principals
Let's take a step back. When someone says a residential property is valued at £X, they are claiming that the building and the land (leasehold or freehold) has a value that can be expressed in a specific currency. As we are talking here in the UK about Sterling, the value of a house here is relative to the buying power of Sterling. If inflation is at 2%, each year then Sterling buys less than the year before. So, the value of the house, expressed in Sterling, has to go up by 2% just to stay even. Using the rule of 72, a property would need to double in value in 36 years just to keep even with 2% inflation.

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