UK property investment continues to remain on the radar of investors despite the shifting political landscape in the European continent. For behind all that Brexit brouhaha is a serious housing undersupply — a growing dilemma that continues to drive prices and rents in the UK property market. Which cities have the best rental growth? We examine the top cities in the UK and their corresponding vacancy rates.
Research has indicated that property remains a preferred investment among the ultra-wealthy, offering definitive and comparatively rewarding long-term returns.
We always hear investment experts say, ‘Diversify, diversify, diversify!’
It’s easy for them to say that when they have a bank of knowledge available on where to plonk their pennies, right? They have people to study, review and discern the markets every day whilst regular people like you and me tread cautiously — because unlike them, we aren’t subject matter experts.
One of England’s rising stars, Manchester is undergoing huge economic growth and transformation, drawing young talents and businesses into its arms, and spurring an ever-increasing demand for housing in the city.
As we enter into 2019, Brexit remains the biggest question for UK property investment — whether there will be a deal, no deal, or no Brexit.
The UK Autumn Budget proved that despite the government’s latest initiatives in addressing housing affordability for first home buyers, landlords remain pivotal to the supply of housing in the UK.
At a glance, the Autumn Budget (Oct 29) had good news for first-time house buyers in the reduction of stamp duty on jointly-owned property. The relief applies to homes of up to £500,000 and is in addition to the first-time buyer stamp duty exemption announced last year.
The Chancellor also declared that the government would allocate £500m for the Housing Infrastructure Fund to enable a further 650,000 homes to be built. This is on top of the previous pledge of 300,000 homes per year, on average, to raise housing supply by the mid-2020s.
Alongside the newly announced stamp duty relief for first home buyers, this is a laudable measure to alleviate housing unaffordability, yet there remains a lack in optimism where the issue of housing supply is concerned.
Historically, the UK has been plagued by a chronic shortage of housing. Not only had the government failed to meet its previous target of building 240,000 homes by 2016 (a target set in 2007), it had also changed Housing Ministers 16 times — more than 20 times faster than the average UK homeowner moves houses!
A research by Heriot-Watt University shows that the undersupply has become even more critical: England alone faces a backlog of 4 million houses.
More houses are needed to address homelessness as well as skyrocketing house prices and rents. And this is where the private rental sector comes in. Not only are landlords pivotal in ensuring the supply of rental housing for the growing number of young people unable to afford their own homes, they also provide flexibility for millennials who prefer to rent.
New research has shown that UK property remains a lucrative investment with 88% of landlords able to gain a profit, as the imbalance in supply and demand continue to drive rental prices.
Investors and landlords can look forward to the following updates moving forward:
(a) PERSONAL ALLOWANCE
Landlords can claim an increased personal allowance amount of £12,500 off their taxes in 2019/20. The personal allowance is currently at £11,850.
(b) CGT ANNUAL EXEMPTION
The Capital Gains Tax (CGT) annual exemption will be increased from £11,700 in 2018/19 to £12,000 in 2019/20.
Some weeks ago, Prime Minister Theresa May announced the possibility of a Stamp Duty Land Tax (SDLT) surcharge of 1% – 3% to be imposed on overseas landlords/ property buyers from Jan 2019.
The government has now revealed that it will propose a surcharge amounting to only 1% during the Budget, and that a consultation on the surcharge will be published in January. Stay tuned as we continue to monitor the news and provide updates in due course.
Interested to invest in UK property and be a landlord? Invest before the foreigner SDLT surcharge kicks in in 2019! Call us and make that smart choice today at (+65) 3163 8343 (Singapore), 03-2162 2260 (Malaysia). Or, email us at info@csiprop.com!
Find out more about Arden Gate, our latest Birmingham residential investment property in the Midlands. Birmingham has been voted one of the UK’s fastest-growing city by PwC. Come meet our developer rep and learn about Birmingham’s bullish property market.
By Lydia Devadas Edits & additions by Vivienne Pal
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Home ownership, especially among the young, in the UK has declined significantly compared to a decade ago. As the name suggests, Generation Rent is growing, now more than ever before.
Today, 40% of young adults are unable to afford one of the cheapest homes in their area even with a 10% deposit.
For 25- to 34-year-olds earning between £22,200 and £30,600 per year, home ownership fell to just 27% in 2016 from 65% two decades ago. This is an indication of home ownership collapse over the past 20 years especially among those from the middle-income range.
Back in 2016, data by the Office for National Statistics had highlighted that the number of homeowners in the 22- to 29-year-old age group stood at 37% in 2008 compared to just 27% over the last 10 years. This drop in homeownership among young adults has several contributing factors.
Rising house prices relative to income growth has robbed the younger generation of the ability to buy their own home, while the increase in rental rates has made it almost impossible to save for a deposit.
House prices have risen around 7 times faster compared to wages over the last two decades. New research by the Institute for Fiscal Studies (IFS) reveals that since 1997, the average property price has risen by 173% in England after adjusting for inflation, and by 253% in London. Meanwhile, rental cost has risen from an average of £140 a week to £200 a week in England.
The expanding disproportion between income rate and ever-growing house prices is resulting in a severe unaffordability crisis among young adults.
According to a report by the Sun, back in 1995/96, 2 in 3 (65%) of 25- to 34-year-olds from the middle-income bracket were homeowners.
But by 2015/16, the number plummeted to just 27% where only 1 out 4 of this group owned their own home.
At the time, average house prices were a staggering 152% higher than they were 20 years earlier after adjusting for inflation. Meanwhile, the nett family income of those aged 25-34 increased by only 22% over the same period, causing a relentless imbalance between household incomes and house price growth.
Another notable factor is the youngsters’ preference for an experience-focused living.
Millennials prefer living amongst a like-minded community. For many, renting a house enables them to live close to the city centre — which also happens to be where they prefer working — and be part of a community that possesses similar lifestyle practices. This aspect seems to have taken the priority seat compared to being able to buy a house.
Purchasing a property near the city centre is close to impossible due to exorbitant prices, hence, renting becomes the next best option.
This drop in home ownership and high demand for rental properties amongst the millennials signifies a huge shift for the UK’s rental and investment sector, offering opportunities for investment returns. In Manchester alone, one of the fastest-growing cities in UK, an estimated 11,000 new jobs are forecasted to increase by 2022, yet only 4,000 new properties in the city centre are expected to be built by then.
The lack of supply in residential properties alongside growing job opportunities increases the demand for rental properties which, reciprocally, opens the gateway for investment. In September 2018, the UK government and Barclays Bank announced a new £1 billion loan fund to drive construction levels in the country’s property sector, with a focus on providing greater numbers of purpose-built rental property in key markets.
The ever-growing rental market promising capital growth and rental income clearly opens an array of investment opportunities for investors looking to spend their money wisely.
By Lydia Devadas Edited by Vivienne Pal
The UK rental sector is buoyant with demand for rental properties increasing and landlords making a profit. By region, the Northwest has shown the highest yields to date.
88% of landlords in the UK made a profit in the last three months (July – Sept), research by BM Solutions found.
The buy-to-let arm of Lloyds Banking Group did a survey of 700 landlords in the UK, finding further that landlords who reported a loss were a mere 4% of those surveyed, with the remaining 8% breaking even.
This is positive news for property investors, one that is buffered by the undersupply of housing in the UK.
BM Solutions head Phil Rickards said, “Despite many recent challenges to the buy-to-let market, it’s encouraging that more landlords have made a profit from their buy-to-let properties this quarter, and that landlords are feeling slightly more upbeat when it comes to the near-term prospects for rental yields, the UK private rental sector and their own letting business compared to (the same quarter) last year.”
Average rental yields in Q3 2018 were still at a high of 5.9%, albeit not at the record levels seen last quarter at 6.2% – the highest since Q4 2014.
By region, yields in the Northwest were the highest at 6.7%, while the lowest yields were found in Scotland at 4.9%. Central London was at 5.3%.
Tenant demand had increased to the highest level recorded since Q2 2017. The proportion of landlords reporting a drop in tenant demand is now at its lowest point since the end of 2016, falling 8% from the last quarter.
Mr Rickards said, “For those speculating about the future of buy-to-let, the figures supporting tenant demand should help to dispel this myth. Considering the much talked about shortage of housing supply, it is vital that we continue to support a healthy private rental sector and with tenant demand scores improving, or remaining stable across all UK regions, it is clear that the private rental sector still has a very important part to play.”
A third of landlords surveyed raised rents over the past 12 months, representing a slight increase from Q2. There was also an increase in the proportion planning to increase rents in the next six months, reaching 27% from 24%. More landlords are also seeing rents rising in the areas where they let properties, with an increase of 9% from Q2.
Even in the capital, where house price growth has seen better days, demand for residential property continues to rise.
Residential letting specialists Benham & Reeves says that the last quarter has been the busiest in their history. Q3 2018 had a 22.1% increase in transaction volumes compared to 2017 Y-O-Y.
The agency said in a statement: “We now have 22 applicants per property, compared with 16 at the same time last year, a sure sign that the world’s capital, London, shows no sign of lessening in popularity in terms of where to live.
“It’s been a staggering three months when you consider how much the London property market has been in the news, in addition to fears around Brexit continuing to make the headlines. This has not impacted on the appetite for London rentals, however. From small units to large, from new-build apartments to period, basement properties, demand has been high across the board, and at every price point.”
Interested in being a UK landlord and benefitting from the intense demand for housing there? Come check out our latest investment in the Northwest and find out how you can get amazing yields. Give us a call at (+65) 3163 8343 (Singapore), 03-2162 2260 (Malaysia), or email us at info@csiprop.com!
By Ian Choong; Edits by Vivienne PalSources:
The new increase in stamp duty, to be paid by individuals and companies not paying tax in the UK, will be rolled out after a consultation.
The new levy, once effective, is in addition to the stamp duty surcharge introduced in April 2016 on second homes.
UK STAMP DUTY FOR INDIVIDUALS OWNING MULTIPLE HOUSES
Amid criticism that the Government’s efforts to tackle the housing crisis has been a flop, Mrs May’s latest measure intends to bring down property prices for British residents by deterring foreign buyers.
Mrs May said on the BBC that her party is “very concerned about the impact that foreign buyers have on the housing market and the impact they have on people who are living here and trying to get into the housing market. The evidence is that foreign buyers coming in pushes house prices up and lowers home ownership here.”
However, the move could be counterproductive, as reduced foreign investment could set back house-building efforts. Builders sell off-plan property in order to seek better financing terms, and the lack of foreign cash injections could slow down projects in the pipeline.
Virata Thaivasigamony, CSIPROP’s Director of Research feels that this would be a stopgap measure with potentially no real long term solution for housing supply in the UK.
“Price growth is influenced by supply and demand. There is already a glaring shortage of housing in the UK, which is a driving factor in house price inflation. Existing homeowners are facing challenges in downsizing or upgrading their homes, while millenials are unable to afford their own homes, hence the need for buy-to-let property.
“This new measure could be good in the short term for local buyers. However, foreign property investors have helped increase the supply of housing in the UK, and deterring foreign investment will have a knock-on effect on housing supply,” he said.
Trevor Abrahmsohn of estate agents Glentree International says, “whilst it is a laudable aim to raise a few hundred million pounds for homeless people, at this critical time for the country, when you want to encourage inward investment why stick up a notice to foreign investors saying ‘we’re closed for your business’?”
Adam Challis, head of residential research at property agents JLL, said: “It’s another small change but if it is read by investors as a signal of something broader, it’s quite possible that it will have a material effect on supply.”
Recent research has indicated that England has a severe backlog of 4 million homes. The Government will need to build 340,000 homes per year until 2031 in order to address the backlog. Current building efforts have fallen short — in 2016/17 only 217,350 homes were built and the government’s current pledge to build 300,000 homes annually by the mid-2020s, will not fully address the shortfall.
Thus, any slowdown in housebuilding could further push property prices, having the opposite effect of what Mrs May intends.
“If you’ve been sitting on the fence about investing in UK property, now is your best chance before the surcharge gets implemented. We are talking substantial savings,” Virata advised, adding that he foresees increased investment activity in the near future as foreign buyers attempt to beat the surcharge increase.
The increased duty will raise £40m to £170m a year, against the existing £9.5bn for residential property. Mrs May said this would be spent helping rough sleepers, whose numbers have been rising.
In August the government launched a £100m drive to eradicate rough sleeping in England by 2027.
If you’ve been sitting on the fence about investing in UK property, don’t hesitate any longer. Learn more about the savings that you get from buying before the stamp duty surcharge: give us a call at (+65) 3163 8343 (Singapore), 03-2162 2260 (Malaysia), or email us at info@csiprop.com!
By Ian Choong Edits & additions by Vivienne Pal
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