The Investment Property Market
We find ourselves writing in September a residential property forecast for the East Midlands. Talk about unknown unknowns and how difficult it is to make predictions or indeed plans, for the residential market, the investment market or indeed any market! Who knows what will happen or where we will be in 6 months time.
We think there are a few relative certainties though that we can cling onto;
Firstly, is that the UK economy and business has carried on relatively well over the past 3 years when there has been this Brexit uncertainty. Surely once we have clarity on in/out, deal/nodeal, almost regardless of the outcome, at least we will be clearer as to where we are and what we are doing. Businesses can once again start to do meaningful business plans and plan for the future. Surely anything is better than the limbo we are in at the moment.
Secondly, people always need a roof over their heads; so there is always, always the underlying demand for residential property.
And thirdly, investors need a home for their cash. This could be equities (who knows where the FTSE will be in 6-12 months), it could be negative yielding bonds, it could be in a zero interest cash account, or it could be in residential property; we think you know which of those choices we would make!
Looking at the revenue side of resi investment; the fundamentals are still attractive; there is good rental demand and there is underlying capital appreciation. We cannot see this changing in the next 12 months, and if anything the uncertainty is boosting rental demand as people wait & see before making plans.
Strong rental demand
On the costs side; as always you need to minimise the gross to net rent margin. If you are not a cash investor, then finance is cheap. You have probably seen in the news about negative interest rates and even negative mortgage rates in Europe; people are being paid to take out mortgages! We do not have that in the UK but we do have very cheap mortgage rates, 2 or 3% on a fixed rate for 5-10 years; one can make plans when one knows the financing costs over the next 10 years. And importantly, employ a quality property lettings & management team.
So, in conclusion, one has strong rental demand, robust investor demand and cheap finance. We predict the market in the East Midlands will continue to be buoyant over the next 6-12 months. Perhaps annual capital growth of 2-3% and a good rental yield in the interim.
For investors the opportunity to lock in cheap finance, in a real/tangible asset, with underlying rental demand and small capital appreciation; what’s there not to like about that? We know where we would be investing if we did have a spare pocket of cash.
Political headwinds prevail, but often where there is uncertainty there is opportunity, and our sales people are experts in their local markets. They can sell properties well, with confidence and we can find properties for clients both on and, increasingly often, off the market.
We will see how the landscape changes going into 2020, lets hope by then we will have 20/20 vision on what is happening re Brexit!