Rental Sector to Expand Despite Sales Recovery

Property sales may be on the up but the rental sector is still in high demand. Savills claims the market is poised for...

Property sales may be on the up but the rental sector is still in high demand. Savills claims the market is poised for significant growth between 2014 and 2016, with more than 600,000 households created in the private rental sector during this time. With homeownership still unaffordable for many, real estate investment opportunities abound for landlords. Major funds like APG, M&G, Macquarie and M3 are already taking advantage of this and have begun investing in build-to-let.

Savills claims that with mortgage lending at higher loan to values still only a third of pre-2007 levels, demand could create more than GBP 150 billion worth of stock in the private rental sector over the next three years alone. Already in the 12 months to June 2013, residential investment property portfolios exceeded GBP 2 billion.

Market conditions are certainly still in favour of landlords and look set to remain so in the future. Housing transaction levels are 46 per cent below pre-crash levels and rising values and poor mortgage affordability are holding back buyers. Meanwhile, the next eight years will see rising population numbers increase pressure on the market, causing a generation to be locked out of homeownership.

Lucian Cook, director of residential research at Savills, said: "The importance of transaction levels tends to be forgotten in the UK. By acting as a constraint on the supply of new homes, they accelerate PRS (private rental sector) growth – and this means there is going to be continuing demand for years to come for a professionally developed and managed rented sector. While there are still obstacles to entry, not least low income yields – such high future demand will lead to considerably higher rental growth, which in turn will attract more institutions."

Craig McWilliam, executive director at Grosvenor Developments, added that landlords have a chance to step in and fill the gap in the housing market. However, the private rental sector still needs to address perceptions of the market among tenants and local authorities to improve conditions and turn rentals into a viable long-term solution.

- Monday 16 September 2013

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