Property investment is just one choice for people looking to save for retirement, increase their passive income or become wealthy. So why is property such a good choice for many investors and what makes it stand out from other asset classes such as equities, gilts and bonds ?

Property investment has certainly caught people's imagination over the last few years with many building substantial portfolios and others at least acquiring a holiday home abroad, or a single buy to let flat to contribute towards their retirement savings. But is property a temporary investment fad or is there is more to it than that?

Property growth should perhaps be considered in relation to the deposit paid for the property rather than assuming the property has no mortgage.

If a property is purchased with for example a 20% deposit (equity), a 5% price gain is actually returning 25% on your equity in just that one year - for example a £100,000 property bought with a £20,000 deposit and going up 5% or £5,000 would make you a 25% return on your £20,000 deposit. On the other hand if the property was purchased for cash then a 5% gain would only return 5% on your equity. Recent gains of 10 to 20% in property prices per year and the resulting 50% to 100% return on equity is what has attracted speculative property investors. These large gains are due to the power of ‘gearing’ and it should be noted that if prices dropped by 5% the same magnification would apply to the losses, so property should never be treated as a short term investment if you are seeking safety.

Even with the slow-down in UK property prices over the last year, opportunities abound. If UK price rises settle to 5% a year over the next few years, that is still a 33% return per year on a 15% deposit. Many people are also seeking opportunities abroad and certainly the arguments already expounded can also apply overseas. With European mortgage rates at just 3% or so and property prices rising at 10% plus a year in many countries, having a holiday home that can be let out as well as providing a long term retirement nest-egg is proving as attractive as having a UK buy-to-let portfolio.