Knight Frank Residential Research Monthly Residential Market Update
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Jon Neale, Head of Development Research, reviews the current trend towards letting properties.
The Rental Market
Renting used to be thought of as a poor alternative to buying – rent was ‘dead money’, and why line the landlord’s coffers when you could be taking your stake in the ever-booming property market?
However, people have begun to question this received wisdom over the last year – for two reasons. Firstly, the slowdown in the sales market no longer makes buying look like the sure-fire investment it once did, at least in the short term. The urgency with which people joined the market, or the reluctance with which they remained out of it, has subsided.
More importantly, though, the difficulties many people have in either buying or selling houses at the moment, given the stasis in the market, have put many people off what now seems like an inflexible option.
Given the turbulence of the worldwide economic situation, tying oneself to a home through a mortgage seems rather less attractive than a year ago – despite the fact that, if you have security and access to finance, now is actually a good time to find a house.
It is unsurprising, then, that Knight Frank’s offices are reporting unprecedented levels of demand for rental property. This has been more than matched, though, with the level of new supply coming on stream from so-called ‘forced landlords’ – frustrated vendors who are unable or unwilling to sell their property in the current market and, as a result, have opted to let it out.
Consequently, there are not only more houses and flats on the market than before – there are more highly-specified, well-presented properties on the market than is typically the case. For landlords to be certain of finding a tenant, it is essential that the property is immaculate and priced to the market: listening to advisors is all-important.
This sudden influx of rental property has been most marked in London, and, as a result, rents have actually begun dropping in the capital – although these falls have taken place after a year of rapid growth. Outside London, generally, the change has been more gentle, although there are certain areas where there is an oversupply of rental property.
While demand has risen over the past few months, it should be added that this is mostly for more modestly priced properties. At higher price points, there are some properties that have remained on the market for considerable time without finding a tenant. In some cases this is because the landlord has opted not to accept the lower level of market rent now available. Nevertheless, there is evidence everywhere that disposable incomes are under pressure.
So, while the excess of stock should begin to moderate, leading to rents stabilising during 2009, any increase will be constrained by wider economic problems and the rising cost of living – not to mention lower wage expectations for 2009 and 2010.
Despite this rather restrained performance, investment in rental property will become a more attractive prospect as the year progresses. With prices falling, owning houses and flats for rental income alone could become a rather more attractive prospect. We expect to see a surge in investment, from individuals and even institutions, during 2009.