The Changing Pattern of Investment
National statistics can be a useful barometer of general market conditions but there's a limit to how much weight should be attached to them. For example, average UK house-prices might make for attention-grabbing headlines, but as any serious investor will recognise, they are of very limited value when it comes to deciding where and whether to invest.
That's because location makes such a tremendous difference to market conditions. Values and tenant demand will vary considerably between different suburbs and neighbourhoods - sometimes even between different ends of the same street. A country-wide average therefore reveals nothing at all about the appeal of a particular investment destination. When it comes to making a financial success of bricks and mortar, local knowledge is everything.
A Local View
At Residential Estates, our own home territory is the North West - a region that is home to enormous diversity. There are some great locations here, as well as some that should be avoided at all costs. A large part of our work is about steering clients towards the safer, more profitable investments and keeping a close eye on local market conditions.
To take our home town of Chester as an example, we've seen a gradual shift of emphasis on the part of private investors. This can probably be traced back to 2015, when the Government first mooted plans for new tax-based measures aimed at curbing the growth of the private rented sector. However, that shift became more pronounced after 1st April 2016 and the introduction of an extra 3% surcharge on Stamp Duty for anyone buying a second (or additional) residential property.
The newspaper headline-writers would have us believe that the extra Stamp Duty, together with this April's reduction in BTL mortgage interest tax relief, has prompted landlords to sell up and leave the sector in droves. Back in November last year, the Residential Landlords Association published a press release stating that a quarter of respondents (in its survey of a thousand members) had either sold a property or were in the process of selling one. This month, the RLA issued another announcement, stating that 22% of the members participating in its latest survey planned to sell at least one of their properties over the next 12 months. However, a similar number - just under 20% - were planning to acquire more.
This second part of the statement is important. The headline-writers fixated on the 22% leaving the market but few picked up on the more nuanced view. The fact that almost as many were planning to expand their portfolios went almost unremarked. That's possibly just because bad new sells papers, but it's important not to be swayed byÂ that. The reality we see on the ground is very different.
A Changing Pattern
Looking across the UK as a whole, ignoring those all-important local market details, the RLA is no doubt right to point to the high rate of sales of BTL residential property. What is much more debatable is what that actually means.
In our experience, it certainly does not mean that landlords have stopped investing. If local activity can be taken as any indication, what it really means is that they are shifting their sights to alternative forms of property.
The rationale for that is simple: there are very few credible alternatives.
With considerable uncertainty still surrounding Britain's future place in Europe, investors seem wary of investing in commercial property. The economy is languishing at the bottom of the G7 table and there are few signs of any immediate change in its status. For the time being, investing in the fortunes of British business would strike many as a brave bet, whether that's in the form of commercial buildings or stocks and shares.
Likewise, there is nothing to be gained from ordinary high street savings accounts, which are currently producing sub-inflation returns. In real terms, money in the bank is losing value every day.
Investors know this, and they know from experience that property is a good long-term performer. Historically, it has always done well and - when viewed in the long term - it has been much less susceptible to volatility. Capital appreciation has generally been good and - importantly - property delivers the added bonus of a substantial monthly income. Rental returns remain healthy; indeed, the Homelet Rental Index found that they rose by 2.4% in August alone.
So if property remains an attractive option but the Government's policies have made residential investment less attractive, where are all the landlords going?
To judge by the enquiries we're seeing every week, a significant number of them are moving towards student accommodation. It's a subject we've covered before, but the reliability and profitability of such properties continues to attract interest and generate sales.
In Chester and elsewhere, landlords appear to be acting on sound advice: not to sell a property until they know they can find a better home for their money. Shares are risky, and selling up and putting cash in the bank is a recipe for losing out. Given the history of property, a calm, analytical response makes sense. If you're looking to achieve a better return on whatever assets you have, consider the options carefully. Do the research and look around for high-yielding properties; study the local conditions and satisfy yourself that there is proven and consistent demand for the kind of property you are considering.
In many cases, student accommodation might be the answer. Many North West investors have certainly arrived at the same one, but - as ever - local market conditions will determine the best opportunities. For some, that might be a new student flat; for others, an HMO, a family home or a high-spec residential apartment in a salubrious part of town.
Just as there's no single set of national statistics that can identify a good investment opportunity, so there's no single answer to the question of which investment is right for you.
If you're considering an investment and you'd like some free, expert professional advice, please call our customer support team on 01244 343 355.