Date: 7.12.16 Author: Arik

FACT 1

When you look over the last ten years, or even further, over the long term, property investment in the UK has outperformed all other major investment assets.

FACT 2

When you buy a residential investment property, you’re investing in an asset that pays a better income yield than stocks, bonds, and cash.

FACT 3

If you invested in UK property 20 years ago, the capital gains you’ve made are infinitely better than those you’d have made on the stock market .

I regularly get asked if I think property investment will continue to be the star performer in an investor’s portfolio? Recent news convinces me that it will be (not that I needed much convincing).

These clearly underline the potential for investment property to be the outstanding investment choice through the next decade.

I have picked three recent headlines from the media surrounding the UK property market, and offer my own commentary on the same.

“House Prices Have Continued To Rise as Shortage of Homes Begins to Bite.”

After Brexit, the pundits forecast that the bottom would fall out of the property market. Some forecasts I saw predicted a halving of property values and that London property prices would be hardest hit, we were told.

If you’ve been taken in by poor reporting, you won’t be the only one. However, I did warn that property investors should never believe all they read in the newspaper.

If you’d heeded my warning, you won’t be surprised to hear that property prices are still rising in the UK. According to figures released by estate agency Haart:

  • House prices in October rose by 0.5% on the month
  • The average house price in the UK is now £227,566
  • First-time buyers are paying over 5% more than they were in October last year
  • Reflecting a more lenient lending environment for owner-occupiers, deposits have fallen by around 2.5%

In London, property prices have bounced back after the immediate aftermath of the Brexit vote:

  • London investment property prices increased by 5.7% on the month
  • The average house price in London increased by 7.6% year-to-year in October

“Transactions Down, but Property Investment Up”

All the talk of a slumping economy (which hasn’t materialised, by the way) has helped to keep many buyers sidelined. New buyer demand fell by 2% between September and October – making the year-on-year fall a whopping 22.4%. However, the number of properties coming to the market has also dropped – by 6.1% year-on-year. The net effect is that there are more buyers per property than a year ago.
Buy-to-let property investors have bucked this trend. Haart has seen more than a 5% increase in the numbers of investors registering in the UK in October and 7% in London.

It appears that while home buyers are suffering a crisis of confidence, investors are becoming more confident. Perhaps this is because investors analyse news differently. For example, if you read the next headline and report from mid-November in isolation, you might think that the housing crisis in the UK is coming to an end. But when this is combined with the third piece of UK residential investment property news below, you may suddenly change your mind.

You may come to the same conclusion that property investors across the UK are coming to: when you invest in the best places in property UK, you will probably have made an investment that will beat all others over the next decade and more.

“The government is on track to meet its housebuilding targets in this parliament.”

In the middle of November, the government announced with some fanfare that its aim of building one million new homes during the current Parliament is on track to be met. They said that house builders have responded to government demands by ramping up their production.

In the year between April 2015 and April 2016, figures showed that 200,070 homes came onto the market. That’s 10% more than the previous year. Look behind the headlines, though, and there’s a different story. After demolitions, net additions to the housing stock boiled down to less than 190,000. Still a stronger performance than the previous year, but perhaps not with the same gloss as the government want.

Stewart Baseley, Executive Chairman of the Home Builders Federation, said that the numbers confirm that “The government’s ambitious target to build one million homes over the course of this parliament is now within reach.”

Brian Berry, CEO of the Federation of Master Builders (FMB) commented that “The figures showing that 189,000 additional homes were created in 2015/2016 are positive progress towards solving the housing crisis. However, the total created still falls below the number needed each year to deliver the government’s stated aim of building one million new homes by 2020.”

So, mixed reactions from housebuilding experts. However, I believe that property investors should consider whether the target for an additional one million in housing supply in the UK will crush the housing crisis. I don’t think so. I’m not alone in considering that the number falls way short of requirements.

England needs 50% more new homes than the government’s target
I want to take you back to July, and to an item of investment news that the media seems to have forgotten, yet savvy property investors haven’t.

The House of Lords’ Economic Affairs Committee commissioned a report called “Building More Homes” and released the results halfway through 2016. The report expressed concern that the hike in stamp duty would reduce investor confidence and ability to provide homes for rent. It drew some other conclusions, too. These included:

  • Local authorities should borrow more to increase the stock of affordable housing
  • Publicly owned land should be released for house building
  • Developers that ‘land bank’ should be penalised

For the prospects of property investment in the UK, perhaps the report’s most striking conclusion was that England needs 300,000 new homes to be built every year. Without this number of new homes, the housing crisis would never be solved.

As a property investor, what I’m hearing is that even if the government’s target of 200,000 new homes a year is achieved, it will be massively short of the need. That’s music to my ears – when demand outstrips supply by such a huge margin, prices and rental values are only going one way. That’s great news for investors looking for capital gains, and equally exciting for income seekers.

Sometimes, whatever the headlines, when it comes to the Property Market, all news is good news.

Sam Barlow
Senior Investment Consultant
D: +44 (0) 20 7016 9902
M: +44 (0) 79 8910 0248

 

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