Income return vs capital growth
Income return vs capital growth
IPD data on performance for the year 2012 shows the UK property market saw capital decline of a little over 3% last year. However, total returns were positive at 2.7%, driven by an income return of 6%.
It’s well known that one of the attractive characteristics of property is a high and stable income return. What is less well known is that it’s the norm for income to be the main driver of performance – the chart above, compiled by Prupim, shows that since 1981 it has delivered around three quarters of the 9% per annum total return recorded (income return has averaged 6.5% pa, while annualised capital growth over the 32 years has been 2.3% pa). After stripping out inflation, for total returns in real terms, income return has been the exclusive driver of performance – real capital growth has been modestly negative on average.
Against very low yields in recent times for bond investments (particularly government bonds), property’s continually high income return (recorded at 6% over 2012) begins to look appealing.
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