Is now the time to buy or to rent?
By Emma Morby, Director of Land Acquisition at Heritage England Limited. In this article, she looks at the property market and debates which is more profitable right now: to buy property or to rent the ones you already have.
The housing market has continued to experience remarkably high levels of activity. Savills recorded the first week of August that sales subject to contract (SSTCs) were at almost double their number the same time last year, indicating a significant release of pent up demand. No doubt the introduction of the stamp duty land tax (SDLT) threshold has helped support this increase but the sales market showed high levels of activity even in the midst of the pandemic.
The RICS survey for July also showed a record 87% of surveyors reported rising levels of new enquiries, and 80% reported rising levels of new instructions.
The completed transaction levels in June stood at 64% of their level the same time last year and transactions numbers are likely to remain on this increased trend until the end of 2020.
The trend of house price rises seems to cover all regions except London, although the London market is improving slowly. In the capital, a net balance of -10% of respondents saw prices fall, but this is a better outlook than the -54% in June.
For many property investors, this makes well-timed purchases even more paramount, with the stamp duty holiday possibly getting extended after March 2021 and, with the potential for more repossessed properties flooding the market, the opportunities will be vast, but will the house prices last?
This increased strength may not last! Pent-up demand, the stamp duty holiday and extension of the furlough scheme have all supported the market in the short term, but these factors will not last indefinitely. In the 1st quarter of 2021, we expect unemployment to rise along with the uncertainty of Brexit as we enter into a New Year. This may cause a reduction in activity and decrease growth towards the end of the year.
So, is renting the way forward?
Rents in the UK increased by an average of 1.5% in the year in September, according to the ONS. The highest growth was in the South West (2.5%), followed by the East Midlands (2.3%). More localised rental data from Zoopla showed that Derbyshire Dales saw the strongest growth of 7.5%, followed by Gwynedd and Blaenau Gwent, at 6.5% and 6.0% respectively.
One of the strongest pieces of news from the RICS report is the increase in landlord instructions. A total of 68% of agents noted that they had experienced more landlords advertising rental properties from June to September.
Over recent years, several legislation and tax changes have begun to affect the rental sector and we have seen landlords starting to off load portfolios which were once very profitable but now seem an unattractive investment. One major shift came from the introduction of Section 24, which changed some landlords’ tax bills. There’s also greater regulation in the market, such as licencing, Electrical Installation Condition Reports and Fire Regulations to name but a few.
On the upside, rental market increases as the sales market decreases. Renting is fast becoming the new way of life for the millennials and, with mortgages getting harder to come by, this trend is set to continue. According to 65% of Agents, tenant demand has soared for a third consecutive month and 87% expect the market and rental prices to grow over the next 12 months.
As a property investors/developers, we always look for the strongest exit strategy in any project. Traditionally, this has been resale of property once refurbed or built, but we are seeing an increase in investors/developers taking the rental route. There have been a number of office blocks converted in the Home Counties which have the sole purpose of rental yield only. These 40-100+ units have an approximate rental income of around £65,000 - £140,000 PCM and, with returns this good, why would you look to sell?
***data sourced from Savills, ONS, Zoopla and Property Mark***
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