As a driver of both individual wealth and overall economic growth, real estate as an asset class has historically been hard to beat. Real estate investment offers the potential for high long-term, inflation-protected returns, and low correlations with other assets. Further, potential returns can be enhanced through leveraging.
More great fortunes have almost certainly been made in property than in any other asset. But many fortunes have also been lost in real estate markets. For evidence of this, we need only look at the property bubble in several economies that eventually burst in the mid-to-late 2000s and contributed greatly to the global financial crisis. In the US, where the crisis originated in the subprime market, it was estimated that house prices plummeted nationally by about 35% between 2006, when the bubble burst, and 2012 when prices began to show signs of recovery.
Real estate markets in other countries underwent similar declines. Such was the extent of the collapse that a crisis of epic proportions ensued in the credit and financial markets, and many economies were ultimately plunged into a deep recession. Real estate is considered to be an "alternative asset," complementary in a portfolio context to stocks, bonds, and short-term securities. Long regarded as a vital "return enhancer" in many investors' portfolios, real estate fell out of favor following the dramatic collapse just described. Fund managers and other investors sold off property, reallocating their portfolios to traditional asset classes or other alternative assets. However, while the crisis provided a stark reality-check for real estate investors, it hasn't sworn them off the asset class for good. With prices having declined to multi-year lows, and central banks embracing "easy" money in an attempt to re-inflate economies, real estate remains an investable asset class for both institutional and individual portfolios.
