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Landlords warned not to rely on good capital gains in UK buy to let sector
Landlords’ confidence in capital gains has almost trebled over the last two years, according to the leading landlord association in the UK. It has risen from 18% to 52% over the last two years but the survey by the National Landlords Association (NLA) also shows that 32% of landlords say they might not be able to meet their mortgage repayments if interest rates were to rise in the near future. Despite the survey findings the NLA is talking down capital gains prospects and has warned against relying on capital gains as a primary investment strategy. The warning comes after the Financial Times recently reported the estimated capital growth of private rented housing stock to be of £177 billion over just the last five years. ‘It certainly feels like a great time to be looking at buy to let a means of additional income but you cannot simply rely on the prospect of capital gains as an investment strategy,’ said Carolyn Uphill, NLA chairman. ‘A lot is being made of capital growth but landlords must remember they are in the business of providing homes for people. It’s a risky investment and the prospect of capital gains is only realised if and when the property is sold,’ she explained. ‘With house prices levelling off and inevitable rises to interest rates as the economy improves, anyone considering investing in buy to let should think carefully before taking the plunge. This means planning for the long term and looking to sustainable yields, not hoping for a windfall in capital appreciation,’ she added. The news comes as the NLA launches the second part of its latest campaign; Rent, Risk Resolve, which aims to highlight the potential risks of rising interest rates. To accompany the campaign the NLA has produced a guide on how to prepare for rising interest rates. Continue reading
Investment in London commercial property market close to last peak in 2007
Investment in central London’s commercial property market reached £20.5 billion in 2014, marginally below the last investment peak in 2007 when £20.6 billion was traded, a new report shows. The huge weight of money flowing into the London real estate investment market from the UK and abroad looks set to continue in 2015 with the level of demand far outstripping the available supply, according to the data from global real estate adviser Cushman & Wakefield. A breakdown of the findings show that investment volumes in the City of London and Docklands reached just over £5 billion in the fourth quarter of 2014, the highest quarterly volume ever recorded in the market. The report says that the strong end to the year meant that the annual total reached £13.8 billion, which is the second highest on record behind the 2007 peak of £13.9 billion. Indeed, half of all investment volumes in the final quarter were as a result of three transactions in excess of £250 million each, which reflects the annual trend and 48% of all 2014 investment volumes were due to 10 transactions above this threshold. The report points out that increasing numbers of investors and surging volumes of equity are being invested into the City of London market with interest from a wide cross-section of investors, notably the world’s largest sovereign wealth funds. It also shows that overseas investors remain the most active in terms of transactional investment volumes accounting for 78% of both the fourth quarter and annual total. Asian investors dominated fourth quarter investment volumes but over the year North American investors have spent the most money in London. However, 2014 witnessed positive net investment from both Asia and the Middle East, while all other regions including the UK disinvested from the capital. Due to exceptional demand, the market yields are being driven down for all investments with prime at 4.25 to 4.5%, albeit several transactions have completed below 4%, notably the Gherkin. ‘We saw a strong City of London investment market in 2014 with international investors dominating acquisitions. The international appeal of London continues with an ever increasing spread of new global investors entering the market and there are no signs of an imminent slowdown,’ said James Crawford, Cushman & Wakefield’s head of City of London investment. ‘Deals from £1 million to £1.2 billion closed during 2014 and capital values hit an all-time high of over £1,400 per square foot at the Gherkin. The first half of 2015 shows all the early signs of a continuation of last year but we expect some profit taking to occur later in the year and uncertainty around the general election in May,’ he explained. ‘We estimate there is £250 billion of liquidity in the market available for direct investment in property and when this is combined with an improving debt market, a severe supply demand mismatch will be created,’ he added. The report also shows that the momentum recorded in… Continue reading
Prime country house price growth in the UK slowing, latest data suggests
Price growth in the prime country house market lost some of its momentum in the latter half of 2014, with property values increasing by just 0.5% during the second half of the year. This compares to growth of nearly 3% over the first six months of 2014, according to the latest prime property analysis from real estate firm Knight Frank. The annual change in prime property prices in 2014 was 3.4%, in line with the firm’s forecast for the year. The number of prime country house sales in 2014 was 3% higher than in 2013 and prime country house prices are forecast to increase by 2% in 2015. According to Oliver Knight, of the firm’s residential research team, the countdown to the 2015 general election, tighter mortgage lending and the prospect of an interest rate rise, all contributed to slower price growth in the second half of 2014. ‘More restrained price growth in recent months reflects what has happened in the mainstream market, with the Nationwide House Price Index having eased for the fourth consecutive month in December. Any slowdown in the wider market is likely to have an impact on buyer sentiment in the prime markets,’ he explained. ‘In spite of more moderate prices rises, market activity has remained robust. The number of prime country house sales completed by Knight Frank in 2014 was 3% higher than the previous year and 24% higher than in 2012, indicating that demand remains strong,’ he said. He also pointed out that reforms to stamp duty, announced by Chancellor George Osborne during the Autumn Statement, sparked a flurry of activity in early December as prime property buyers looked to move ahead of the rate change. Under the new rules, buyers of homes valued at more than £937,500 face higher stamp duty charges. As a result, the day prior to the new rules coming into force, was the busiest day of 2014 for the prime country market in terms of transactions levels. ‘It is possible that the prime sector of the market may take some time to absorb the changes as a result of the higher upfront cost of moving, with harder negotiations between buyers and vendors likely,’ said Knight. He also explained that prime country house prices are still trading at a large ‘relative’ discount to prices in London, having experienced several years of static or modest growth since the end of the financial crisis and prime prices remain 16% below the previous market peak. Also, price performance is increasingly dependent on property type. While the average cottage increased in value by 6.8% in 2014, manor houses rose by just 1.4%. ‘We are forecasting average price growth of 2% across the prime country market in 2015, but do not rule out some areas of outperformance, especially in key commuter towns,’ Knight concluded. Continue reading
