Time for Long Term Investment

The short-term prospects for the property industry may not appear too hot just now. Agent confidence is low, as shown by the Hot Property agents’ index, which shows the number of estate agents more confident about the market now than they were in March at just 42 per cent. Moreover, they may seem to have plenty of good reason. One good reason is the interest rate situation. Many hope that there will be a base rate cut next month, but it needs to borne in mind that while reducing borrowing costs could help boost the economy, the primary role of the bank of England is keeping inflation at or as near as it can to two per cent. This is a priority to which much attention may be focused after yesterday's news from the Office for National Statistics that the consumer prices index rate of inflation had jumped from 2.5 per cent in March to three per cent in April. While this takes the Bank of England up to the ceiling of the permissible variation before governor Mervyn King would be obliged to wrote an open letter to the chancellor outlining what the monetary policy committee (MPC) was going to do about it, the situation not entirely unexpected. A sudden jump in inflation caused mainly by rising food and fuel prices was exactly what was predicted in the February inflation report. However, that report also said such a situation would be short-lived, with such influences quickly waning and allowing the inflation rate to fall. Such a view has not been sustained through to this month's quarterly report, which Mr. King revealed in the press conference to announce it was a sign that the MPC's job of walking the tightrope between high inflation and low growth was getting harder. He commented: "For the time being at least, the nice decade is behind us." The May projection is that inflation is more likely to be persistent and upward pressures stronger. While the report stated that the strength of these factors is the subject of "significant uncertainty", meaning there may yet be weaker than projected inflation and therefore more scope for cuts, the picture painted suggests it would be unwise for those investing in property to take a risk on such events taking place. Yet this does not make it a bad time to invest in property just now, according to Simon Zutshi, founder of the property investor’s network. He said that at present the state of the market meant that it could be bought at a "fantastic price". However, he suggested, there may not be any price rises for some time, so this should only be done as part of a long-term strategy. He elaborated: "Because prices are going to be shaky for the next couple of years you are going to have to wait a long time for prices to come up; it's got to be a long-term investment. Property is a long-term investment; it's not a get rich scheme." Of course, many seem to be doing just this, such as the 46 per cent of those who were revealed in the March survey of the Association of Residential Letting Agents to be planning to expand their portfolios over the next year. With so much uncertainty in the short-term, it may be a good time to hammer home the message that long-term is the only safe way to invest.