UK property market performance update
July 30, 2020
The current pandemic has provided many of us with more time; less time spent commuting and more time spent at home. For some of us, this has provided an opportunity to review our financial position and to re-consider our approach to investing in property.
Some investors like to try to time the market by taking a short-term “buy low and sell high” investment approach and by “flipping” a property. However, whilst this might work for stocks and securities, this approach is possibly not right for buy-to-let property, which is less liquid and where there are higher transaction costs. Also, because timing the market cycle is notoriously difficult (for example, take the current pandemic) and because heavily discounted property is either hard to find (i.e. finding motivated sellers can be difficult) or the property is being sold at a discount for a good reason (e.g. it needs significant refurb work and it’s best suited to professional developers).
At Vesta we believe that buy-to-let property should be viewed as a long-term investment. In this blog post we will look at the UK housing market and see how it has performed over the long-term as well as more recently during the pandemic.
Resilience during uncertainty
- In the UK, we estimate that the private rented sector (PRS) has delivered a positive performance in the first half of the year and has outperformed commercial real estate, cash and equities.
- The total return for the PRS for the first 6 months of 2020 was +2.3%, split between net rental income (1.8%) and capital growth (+0.5%).
- A recent survey by Remit Consulting finds that rental collection rates for the UK private rented sector (PRS) were 93% for Q2 2020. This compares with 88% for offices, 84% for industrial units and just 68% for retail.
- Typically, collection rates can be expected to be 98%+ across UK real estate.
- Rental growth for the PRS in England was also healthy (based on data from the Office for National Statistics), growing by a total of +0.7% over the first half of the year. This compares with data from CBRE that finds that rents grew by +0.4% for offices, +0.9% for industrial units and decreased by -4.6% for retail property over the same period.
Robust long-term performance
- According to Nationwide Building Society’s House Price Index, seasonally adjusted average house prices in the UK have increased by +42.6% since 2005, whilst according to data from the Office for National Statistics, private housing rents in England have increased by +34.6%.
- Average private housing rents in England have only fallen in one year in the past 15 years (-0.5% in 2009) and have grown on average +1.9% p.a. since, despite two major international economic crises; growth in private housing rents accelerated in the global financial crisis of 2008-09 and during the European sovereign debt crisis between 2010-12.
- Average house prices in the UK have grown on an average +2.3% p.a. since 2005, with only two negative years (2008 and 2012).
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