Newsletter April 2007Rents Mark Inflation While Property Prices Soar
Continually rising house prices mean that yields on Buy to Let property remain relatively static. However, the cash value of rents received by landlords has kept pace with inflation. This shows clearly in the latest quarterly survey of ARLA member letting agents. The survey, the largest of its kind in the private rented sector, also shows that new build is not as popular as believed.
Overall, average capital value of rented houses has risen by 10.7% during the three months to the end of February. This is as a result of rises of 12.4% in prime central London and 15.5% in the rest of the South East. By contrast, average capital values in the rest of the country fell very slightly, by 0.6%.
The average value of rented flats rose by 6%. Again, this is as a result of increases in prime central London of 5.8% and a rise in the rest of the South East of 11.3%. In the rest of the country, the capital values of flats rose by 0.9%.The ARLA survey shows that rental demand continues to outstrip supply and tenants are staying in rental properties for more than 15 months on average.
The letting offices report that just over half of their rental portfolios are made up of investment or Buy to Let properties. Among these investment properties, new build and properties in good condition are the most popular with Buy to Let landlords. This is with the exception of investors in London.In the capital, managing agents believe that more investors are buying properties in need of refurbishment, or that have been newly refurbished, rather than new build.
"This may be contrary to what many people believe, but our survey is of sufficient weight to suggest that a rethink about the pattern of London investments is needed," commented Adrian Turner, Chief Executive of ARLA.
Reports emerging about this pattern of purchasing are reinforced by the age of properties being bought. In London itself, investment landlords are most likely to buy properties that are more than 100 years old.
"London has a heavy weighting in its housing stock towards good quality Edwardian and Victorian property. This can be terraced or detached, mansion blocks or small conversions. They are usually well built and spacious and make good rental propositions," added Adrian Turner.
However, away from London, properties that are less than ten years old are proving to be the most popular with investment landlords. To finance their property investments, landlords are borrowing around 70% of the purchase price. - 73% away from London and 68% in London.
Right across the private rented sector, the survey reports an historically high demand for rental property. Six out of ten agents in London report more demand than rental stock available. In the South East, the proportion reporting more demand than supply has risen from 37% to 42%. There are also small rises in demand reported from the rest of the country.
Again, this quarter's ARLA survey shows that regulation and bureaucracy remains a problem for landlords with houses in multiple occupation. Since new legislation governing this sub-sector of the rental market was implemented last summer, it has been obvious that many landlords have withdrawn from the HMO market.
Agents report that landlords find the new rules, the volume of bureaucracy, the cost of HMO licences and the cost of alterations to comply are all too onerous.
"This is an obvious demonstration of the dangers of regulation and bureaucracy," said Adrian Turner. "The HMO market is suffering while the rest of the rental market is healthily buoyant."
RICS UK Housing Market Survey Feb 2007 - House prices slow as affordability worsens
House price rises have slowed to the slowest pace since last May as interest rate hikes have worsened buyer affordability, says the RICS UK housing market survey.
House prices rose for the sixteenth consecutive month in February but the pace of increase slowed to the lowest since last May. 24.0% more Chartered Surveyors reported a rise than a fall in house prices, down from 28.0 % in January.
The pace of increases remains only just above the long run average of 21.6% as supply conditions remain tight boosted by a strong economy. Three interest rate hikes have begun to weigh heavily on buyer affordability. 19% more chartered surveyors reported a fall than a rise in new buyer enquiries - down from 6% in January.
New buyer enquiries are likely to weaken further in the coming months as January interest rates takes effect on the market. New instructions to sell property have gone nine months without a rise, the longest stretch in seven years. Households remain under little pressure to sell with the stock of unsold property on surveyors' books falling to the lowest level since July 2004.
As a result, the ratio of completed sales compared to the stock of available property on the market rose to 47.0% – the tightest market conditions since June 2004. Strong house price growth was once again seen in London and the South of England fuelled by an ever-booming financial services sector but there are signs of a modest slowdown.
In Scotland house prices increased at their fastest pace for several months while remaining robust in Northern Ireland. However, the picture in other parts of the country is much weaker with small price falls reported in the East Midlands
RICS spokesman Ian Perry, said:
"The interest rate rises have started to worry would-be buyers with many concerned that they will be unable to meet mortgage repayments. Affordability for many will continue to decrease in the coming months as the January rise, and further rises take effect.”
"Bullish market conditions still prevail in the South East, Scotland and Northern Ireland but this is at the same time that prices have stagnated in the Midlands. Market conditions remain tight but greater awareness of HIPs, in the run-up to their introduction, might push more property onto the market in the coming months increasing choice for the short term.”
Demand for business parks improving, says GVA Grimley
A new report published by property advisors GVA Grimley, shows that increased demand for business parks in the last quarter of 2006 is boosting developer confidence in speculative schemes, and is raising optimism for rising levels of take-up in 2007.
GVA Grimley’s bi-annual Business Parks Review Spring 2007 highlights take-up of space in the last half of 2006 increased by 2.6% compared to the previous six months, with the total of 250,000 sq m considerably higher than the six-monthly five year average of 200,000 sq m.
The report shows that this increase is accounted for by business parks in the South East, where take up in the region in the last six months has been 79% higher than the six-month average of the last five years. In comparison, there has been a decline in take up in all other regions.
Following a similar pattern to take-up, the demand for business park space varies between regions, with the South East and South West enjoying stronger demand than other regions across the country. The report highlights a trend in the amount of new business parks which are being built speculatively, which is now 71% of the total space under construction, compared to 50% just 18 months ago.
The report examines rental growth for the out of town business parks, and reveals that national prime rents grew by 3.1% during the last 12 months and by 1.6% in the last six months. The greatest rental increases were recorded in the North East, Yorkshire and Humberside, where prime rents increased by 4.2% year on year. The firm’s latest forecasts are for average business park rents to increase by 3.2% in 2007, rising to 3.5% in 2008 and averaging 3.5% over the next five years.
Carl Potter, GVA Grimley’s national Head of Business Parks said: "Once again the traditional business park sectors of ICT and TMT industries are driving the demand forward with the South once again fuelling the growth. The prospects for business parks this year are becoming increasingly bright and whilst the figures might suggest that we should be concerned about regions, history informs us that the tide of prosperity ripples northwards without too much delay".
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