In times of economic uncertainty, particularly when global trade tensions escalate and financial markets become volatile, investors often seek out “safe haven” assets. The question arises: Is property investment one of these safe havens, particularly when financial markets are disrupted by trade tariffs such as those introduced this month by Donald Trump? The answer is nuanced but leans strongly towards yes, and here’s why.
Property Investment as a Shield Against Market Volatility
- Low Correlation with Equities and Bonds Property generally exhibits low correlation with traditional financial markets such as stocks and bonds. When trade tariffs destabilise global markets, causing equity values to fall, currency fluctuations, or supply chain disruptions, property investment tends not to follow the same trajectory. This decoupling makes property a useful tool for hedging against volatility.
- Tangible Value and Intrinsic Utility Unlike equities, which can lose value rapidly based on investor sentiment or geopolitical events, property holds intrinsic, functional value. People will always need homes, and businesses need physical premises. Regardless of tariffs or trade barriers, the demand for space — residential, commercial or industrial — remains relatively constant, particularly in key locations.
- Income-Producing Potential During financial downturns triggered by trade disputes or tariffs, many stocks may cut dividends, and bond yields can fall. In contrast, rental income from property can continue providing steady returns, especially if properties are in high-demand areas or serve essential sectors (e.g., affordable housing, healthcare, logistics). This income can cushion overall investment performance.
Effects of Trade Tariffs and the Role of Property
Trade tariffs like those enacted during the Trump administration have complex ripple effects. They can:
- Increase the price of construction materials (e.g., steel, aluminium, lumber)
- Raise inflationary pressure
- Slow economic growth
- Create uncertainty in manufacturing and logistics sectors
These consequences hit traditional investments hard. Stocks in sectors reliant on global trade often take the brunt, while currencies may fluctuate wildly depending on trade imbalances.
Property investment, by contrast, tends to be locally grounded. A rental property in Manchester or Stockport is more likely to be affected by local supply and demand than by U.S./China trade tensions. While tariffs may increase construction costs, they can also restrict supply, propping up the value of existing assets. In this way, trade policies may indirectly benefit existing property investors by creating a market shortage, albeit over the longer term.
Historical Context: Property During Past Trade Shocks
During past periods of trade tension — including Trump-era tariffs on China, steel, and European goods — financial markets often responded with volatility. Yet, property markets in many areas remained resilient. Residential property in the UK, for instance, continued its upward trajectory despite Brexit uncertainties and global trade disputes.
Industrial property even experienced a boom, as companies sought to localise supply chains and secure logistics facilities, driving up demand for warehouses and distribution hubs.
Considerations and Caveats
While property offers relative stability, it is not completely immune:
- Liquidity is lower than with stocks or bonds; property takes time to sell.
- Financing costs may rise with inflationary pressures triggered by tariffs.
- Regional and sectoral variation matters — not all property types respond the same way.
Hence, diversification within property (e.g., across regions or asset classes) is crucial.
Historical Performance: UK Real Estate vs. UK Stocks
Over the past few decades, UK real estate has demonstrated steady growth. For instance, the average UK house price increased from £1,884 in 1953 to approximately £265,240 in the fourth quarter of 2024.
In comparison, the FTSE 100, representing the UK stock market, has experienced varying returns. While exact figures fluctuate annually, the FTSE 100 has generally provided average annual returns between 5% and 8% over the long term.
Forecasted Returns for UK Commercial Property
Looking ahead, the UK commercial real estate sector is projected to yield an annualized total return of 7.5% between 2024 and 2028.
A Secure Harbour in a Stormy Sea
Yes, property investment can offer a measure of security when financial markets are falling due to trade tariffs. Its tangibility, income generation, insulation from global trade dynamics, and generally slower price movements make it a valuable component of a diversified portfolio.
UK real estate has shown consistent appreciation, especially in residential properties, the stock market has offered higher average annual returns over extended periods. However, real estate investments provide tangible assets and potential rental income, contributing to portfolio diversification.
While not risk-free, property investment often serves as a stabilising anchor when traditional financial markets are rocked by geopolitical moves, protectionist policies, or trade disruptions.
