The UK's private rented sector (PRS) offers numerous property investment opportunities, particularly as one in five households is expected to be leasing their home by 2016. A new report compiled by Savills and Rightmove revealed the country's PRS has grown by 42 per cent in the past five years, with this upward trend set to continue. According to the findings, GBP 200 billion in investment is required in order to meet demand, with a shortage of rental properties currently fuelling the rise in leasing charges.
Chancellor George Osborne's Budget statement last week (March 21st) met with a mixed response from those in the property sector. Organisations like the National Landlords Association expressed concern that changes to the stamp duty tax regime could curtail investment in residential real estate by landlords who operate as small businesses, while the British Property Federation (BPF) praised plans to look at how real estate investment trusts (REITs) can be utilised to boost investment in social housing. Peter Cosmetatos, director of finance at the BPF, stated that using REITs in this way would "help stimulate investment in housing at large" - clearly a desirable outcome given the conclusions about the future of the PRS in the Savills and Rightmove report.
From an investment perspective, average gross yields in the sector are attractive, although there is wide variation between the UK's regions. For example, in London average returns of up to 9.1 per cent per annum are predicted over the next decade, while in regional cities like Bradford, anticipated yields are much lower, falling below six per cent annually. Meanwhile, one and two-bedroom properties typically offer higher returns than larger homes, although Savills pointed out this may change moving forward, as demand for family housing in the PRS is expected to rise. In addition to gross yields, investors also need to be mindful of capital growth prospects in the region in which they are purchasing property, the organisation noted.
The firm explained those who intend to buy real estate assets using debt finance will be keen to choose homes in locations that offer a higher income return, in order to pay off the loan. Meanwhile, investors who are in a position to enter the PRS using mainly cash to fund their acquisitions will be able to focus their attention on regions that offer better capital growth prospects in the mid to long term. Family accommodation - typically homes with three bedrooms or more - is expected to deliver better capital appreciation than smaller properties.
- Thursday 29 March 2012