Private Rented Sector Report

Oct. 14, 2010 - PRLog -- This quarter, in addition to reporting on property price and asset acquisition expectations, Young Index assesses the value that investors attribute to professional Property Management.

The private rented sector is sometimes unfairly maligned as ‘amateurish’ due to the current dearth of large scale professional institutional investors.  So it is particularly heartening to see that professional Property Management – and its impact on asset value - is so highly regarded.

Headline Results:

•   70% of landlords believe that tenants pay higher rent for properties that are professionally managed.
•   68% of landlords believe that average tenancies are longer for property that is professionally managed.
•   71% of landlords believe that tenants take better care of a property that is professionally managed.
•   67% of landlords believe that professional management of property enhances its capital value.
•   71% of landlords think that professional property management is money well spent.
•   75% of landlords would recommend professional property management.
•   61% of landlords questioned employ an agent to manage their property.
•   34% manage the property themselves and 5% of landlords’ properties are managed by a member of their family or friend.
•   Of those who self-manage their rental property, 87% enjoy doing so and 85% are motivated by the cost saving.
•   97% of landlords intend to hold their residential property investments for the next 12 months.
•   54% intend to hold their assets for at least 10 years.
•   24% of landlords intend to retain their property investments for the next 20 years or more.
•   The average period that residential property investors expect to hold their property investment assets is 12.7 years.
•   36% of investors are considering purchasing additional residential property assets within London over the next 12 months.
•   25% of investors are looking at opportunities in the UK outside of the capital.
•   73% of respondents believe that London prices will be at current levels or higher by this time next year.
•   For UK property outside of the capital, 46% expect prices to be at current levels or higher by this time next year.
•   Landlords expect London property prices to see an average price increase of 1.9% by this time next year, moderated from an increase of 2.5% cited last quarter, but up on the annual increase of 1.48% that was predicted at the end of Q1 2010.
•   The predicted 12 month outlook for UK property prices outside the capital is a fall of 3.15%.  This continues the recent trend of worsening expectation (-1.0% predicted at the end of Q2 and -0.58% in Q1 this year).
•   The average base rate expectation for Q3 2011 stands at 1.16%, virtually unchanged from the 1.14% outlook that was predicted in Q2 2010.

Neil Young, CEO, Young Group comments:

“The latest quarterly Young Index survey of residential investment sentiment focuses upon property management.  In a sector that is characterised by large numbers of ‘amateur’ landlords, it is encouraging to see that they appear to wholeheartedly value professional property management and indicate that they believe it results in higher rents, enhanced capital values, longer tenancies and encourages tenants to take better care of their rental property.

“Landlords undoubtedly still see their property investments as a long term play, they are not expecting house prices to increase particularly over the coming year – and predict that prices outside London will fall by an average of 3%.

“They expect base rate to remain well below its long term average for at least the next 12 months, but there are indications that access to appropriate finance will prevent them from purchasing additional property.  Expectation of property asset purchases in London has fallen back from last quarter’s figure, whereas interest in property purchases outside of the capital has increased.”

Market Outlook Dips from Q2’s Peak

The market outlook among investors, measured by 12 month property price expectations, dipped in Q3 from the previous quarter’s peak of positivity.

The proportion of landlords who expect property prices in London to remain static or to rise over the next 12 months has dropped by 14% (from 87% in Q2 to 73% for the three months to September).  However, in the eyes of investors, London property still remains a more attractive asset than property outside the capital  with the expectation for UK property prices outside London to rise or remain static during the next 12 months sliding by 24% (from 70% to 46%).


Although sentiment as a whole is dropping irrespective of location, Landlords still expect to see average London property prices increase over the next 12 months, albeit at a lower proportion than predicted in Q2.  Landlords predict that London property will rise in value by 1.9% between now and Q3 2011, a moderation from the 12 month increase of 2.5% cited last quarter.

The 12 month outlook for UK property prices outside the capital remains negative and had worsened.  Investors now predict that prices will drop by 3.15% over the coming year, a worsening from the expected fall of 1% that was cited in Q2.

Appetite for Investment

The ongoing difficulties of securing funding for buy-to-let property purchases remains an obstacle to landlords purchasing residential property.  The following chart shows that the proportion of investors considering making an investment property purchase in London over the next year slipped from 47% in Q2 to 36% in Q3.  While the data indicates that investors considering purchasing property to let outside of the capital has risen for the first time in 12 months, from just 16% in Q2 to 25% in Q3.


Looking to the Long Term

97% of landlords questioned intend to hold their residential property investments for at least the next 12 months.  Furthermore, 54% now expect to hold their assets for at least 10 years (up from 44% a year ago) and 24% of private property investors intend to retain their properties for the next 20 years or more.

The average period that landlords expect to hold their rental property assets is 12.7 years, down from the peak of 13.6 years cited in Q2 but still significantly higher than the 10.8 year average seen a year ago and 9.9 years, which was reported in Q3 2008.

Base Rate Expectation Remains Low

Perhaps unsurprisingly, almost all respondents expect the Bank of England base rate to remain far below its long term average of 5.0% for at least the next 12 months.  Just 5% of respondents believe that it will have risen to more than 2.0% by this time next year (down from 11% who expected such a rise last quarter) and only 2% expect the base rate to have risen to in excess of 3.

According to latest Young Index results, the average base rate expectation for Q1 2011 stands at 1.16%, virtually unchanged from the 1.14% 12 month outlook predicted in last quarter’s Index

UK Landlords Value Professional Property Management

In this quarter’s snapshot of the market, 61% of landlords use a lettings agent to manage their property, 34% manage their own property and 5% rely on a friend or relative to ensure that maintenance and repairs are carried out.

Of the landlords who self-manage their property, 87% enjoy doing so and 85% are motivated by the cost saving on professionals’ monthly management charges.
However, there is wide-ranging support for the benefits of employing a professional property management team with 71% of all landlords questioned believing that it is money well spent and 75% recommending professional management over self-managing rental property.  Perhaps this is due to the fact that 70% of respondents believe tenants pay a higher rental for professionally managed property, 67% that capital values are enhanced, 68% that average tenancies are longer and 71% that tenants take better care of professionally managed property.

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ABOUT YOUNG GROUP
Young Group was established in 2003 by a team of surveyors and accountants to enable investors wishing to hold residential property to do so with the same ease as they would invest in any other asset class.

Young Group specialises in delivering Property Portfolio Management services to private and institutional investors. The Group’s activity spans the entire investment cycle from identifying opportunities and financing their acquisition, through to managing the asset (tenanting through our double The Times and Sunday Times award-winning agency, Young London; furnishing through Young Furnishing; financing/refinancing through Young Finance).