The demand for purchasing additional investment property in London has remained stable throughout the first six months of the year with 44% of investors considering adding Private Rented Sector (PRS) assets to their portfolios over the coming 12 months.
However, sentiment towards PRS property outside the capital has fallen back during the second quarter; 18% are now considering making purchases outside of the capital during the coming year, down from 24% in Q1 2012. For the first time since Q4 2007, more respondents are considering making overseas purchases (29%) than making purchases in the UK’s regions.
Of those not considering additional PRS acquisitions over the coming 12 months, the overwhelming majority state finance-related issues as the principal factor in their reticence to invest.
Perhaps unsurprisingly, respondents believe that prospects for capital growth and rental income in London outshine those across the rest of the UK.
Over the past two years, respondents’ expectations of capital value movements have fluctuated somewhat, but the trends over that period for property within, and outside, the capital have continued to polarise.
Rental income is increasingly important to investors. In Q2 this year, 20.7% cited it as more important to them than capital growth, against only 8.1% in Q1 2011.
COMMITMENT TO THE PRS
Investors remain committed to the PRS; 94.5% have no intention of liquidating any PRS assets over the coming year. Of those who do, the vast majority will liquidate for cash rather than another investment class.
34.5% of investors are intending to hold their properties for at least the next 20 years and 58.2% for the coming decade.
The average anticipated future hold period in Q2 2012 was 14.3 years and on average, investors have held PRS assets for 6.5 years. It is clear that investing in the PRS is a long term position, borne out by the fact that 52.7% of investors are holding these residential property assets to bolster their pension provision.
Investors increasingly recognise the importance of property management in protecting and even enhancing asset value and income returns. This quarter, 81.0% cited the burden of property management as the principal reason for using an agent to manage their portfolio.
In Q1 this year, the percentage of investors predicting that the Bank of England base rate would remain static for the forthcoming 12 months fell by 14.4% from 58.3% to 43.9% as confidence in the economy’s recovery grew.
However, in Q2, sentiment has turned; 65.5% now expect the base rate to remain stable at the historic low of 0.5% through to Q2 2013. Even accounting for those who think a rise will occur before this time next year, the average base rate expectation stands at just 0.57%.
The PRS in Numbers: Investor Sentiment at Q2 2012
LONG TERM FOCUS...
• 94.5% of landlords intend to hold their property for the next 12 months.
• 58.2% intend to hold their property assets for the next 10 years or more.
• 34.5% intend to hold their property assets for the next 20 years or more.
• 14.3 years is the average future hold period that residential landlords expect to retain their property assets for.
APPETITE FOR INVESTMENT...
• 43.9% of investors are considering purchasing additional residential property assets within London over the next 12 months.
• 18.5% of investors are looking at opportunities in the UK outside of the capital.
CAPITAL GROWTH & INCOME...
• 96.6% of respondents believe that London property values will be at current levels or higher by Q2 2013.
• For UK property outside of the capital, 41.4% expect values to be at current levels or higher by this time next year.
• 98.3% of respondents expect rental income in London to rise over the coming year.
• 83.5% of landlords expect UK rents outside London to rise over the coming year.
• Landlords expect capital values in London to see an average increase of 2.0% over the coming year with rental income increasing by an average of 6.2%.
• The predicted 12 month outlook for PRS capital values outside of London UK is a drop of 0.8% and average rental income is expected to fall by an average of 1.2%.
FUTURE BASE RATE EXPECTATION...
• On average, landlord investors expect the base rate to be 0.57% at Q2 2013.
• 65.5% of investors in the PRS expect the Bank of England base rate to remain static for the coming 12 months.
About Young Index:
Young Index is a quarterly gauge of market sentiment within the private rented sector, polling Young Group’s client base of around 500 active investors/landlords who hold UK residential investment property.
Director of Communications
T: 020 7593 3309 / 020 7531 7720
Download the pdf:
About Young Group: www.younggroup.co.uk
Young Group is shaping the Private Rented Sector through research, investment, finance and asset management. The Group’s activity spans the entire investment cycle from identifying opportunities and financing their acquisition, through to managing the asset, regularly reviewing the performance of the property holdings and advising on strategic direction, through to realising returns in the most tax efficient manner.
Young Group delivers day-to-day asset management through Young London, its lettings and management agency, which has won multiple awards from The Times, The Sunday Times, Bloomberg and HSBC. In addition, Young London has been shortlisted as Best Lettings Agency at the RESI Awards.