04 May 2019
The ONS data suggest a variable trend where the average house price grew 1.7 percent in the year to the first month of 2019 that was 2.2 percent in the last month of 2018. The growth in private rentals has increased the attractiveness of the real estate markets in the UK as the rents paid by the private tenants increased 1.1 percent from the year to February, almost 1 percent up from the previous year. UK house price increased substantially in the past 40 years from 1971 to 2011, where the land registry data finds the number of registries in January 1995 was £55,437, and by March 2019, the average price was £223,610, representing a growth of 303 percent.
In years from 2005 to 2016, the private rents, on an average, grew in the capital by over 38 percent, and hence, the government is preparing to introduce a blueprint to stabilize the rental markets. Such regulations exist in the US and Germany, but investors are still buying in these markets.
The number of estimated homes needed in the UK is in the range of 240,000 to 340,000, but with the current rate of new housing supplies in 2017-2018 – the supply increased by 222,000 homes that are 2 percent higher than the previous year, nevertheless, it cannot meet the growing need for new homes.
Before the 2008 recession, easy mortgage access, well-paying jobs, and irresponsible lending into the home-buying sector and the buy-to-lets contributed to a number of problems. Now, the approvals are not that easy, even then, in February 2019, the mortgage approvals were at 64,337 and the demand continues to grow due to the ultra-low interest rates and the supportive home buying schemes. Regulations were made by the government to curb buy-to-let investments and on the second home buyer, the additional stamp duty on properties was introduced, but the market faces a severe shortage of homes that can predominantly be seen in London and South East England.
Emerging privately rented and built-to-rent sectors
In the current market of Brexit uncertainty, the demand and supply both have declined and the growing rents have attracted investors. The recent Knight Frank forecast claims by 2023, the investors may spend £75bn into the professionally managed privately rented sector. As per CBRE, a record investment of £3.1bn was made by institutional investors in the PRS sector in 2018, which was more by 30 percent from the previous years. The new sector has been attractive for the investors who are restricted by the new stamp duties on the second homes.
The uncertainty in the market over Brexit has led to the rise of the appeal of the built to rent sector. In terms of construction, the BTR sector grew 22 percent in 2018, where the total number of units completed in January, or those under construction, or the ones in pipeline remained at 139,500 in Q4 of 2018. Savills forecasts PRS (the tight yield asset class) is one of the most growing strategies in the current markets, which can deliver the highest returns in the coming five years. Currently, it is the best performing is urban logistics, projected to deliver an annualized growth of 5.9 percent, and an average rental return of 4.1 percent.
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