Mmmmmmmmmm, Bricks and Mortar
Property investment; two words that leave a person drooling — either due to a brain meltdown or the realisation of investment potential. The idea of acquiring a property and spinning it into a cash cow can be a headache, but it is a fantastic investment choice in today’s market. Unfortunately, it is limited to a small proportion of potential home buyers.
Looking at the RICS Property Market Chart Book for April 2016, housing prices are set to rise for all areas of the country over the next three months, except Central London. Beyond that, it’s a positive outlook across the nation. In general, it is safe to say the economy is slowly improving, unemployment figures are down and interest rates hovering perfectly for investors. This will allow the property sector to continue its expansion inside and, most importantly, outside of London. The start of April saw a stamp duty rise for buy-to-let purchases, with the legislature aiming to clamp down on buy-to-let landlords. This move towards increasing first time buyers and home ownership hinted that the market could be disrupted.
While the stamp duty hike saw a larger amount of exchanges completed before the April deadline than in previous years, the forecast is only projecting a small slump in the buy-to-let market, with a positive outlook prevalent after April. Potential landlords are now expected to either factor in the greater stamp duty cost when purchasing or pass on the costs to tenants where possible, mostly negating the extra costs. Importantly, the demand for private rental properties is only going to increase over the next five years, as demand will exceed supply, whilst the million new houses the government have promised will take time to materialise. So for those who can afford it, property still seems to be the perfect investment.
Why not use conventional investment channels?
Naturally, the first thing you do when planning to invest is look at the return. So it doesn't take long to realise that a property investment is currently out-yielding most savings accounts. With opportunities of yielding 5%+ readily available outside of central London and all across the UK, investing in below market value property will be likely to yield more than other investment channels.
However, no matter how positive the signs are, the market still needs to be affordable. For this to happen, the government’s pipeline of new homes, and other private investment, need to take off. This is likely to only start taking form after 2019.
The overall consensus with investors and experts alike is that while prices are expected to drop from around 6% to 4% over the next three years, there will still be substantial growth within the sector; positive news for investors and buyers. This is because house prices are still increasing year on year, teamed with a boost in housing construction of nearly 4% from 2015–17 and market growth, leading to an increase in affordability for UK investors. While it is only partially rebalancing the grossly misaligned supply and demand for the sector, it is becoming a better culture in which to invest. With almost guaranteed growth for the next three to five years, with a steady price growth due to lack of supply and constrained preference to rent, the outlook for the average investment yield is very good in the medium term.
Furthermore, with interest rates currently not budging from the 0.5% mark, borrowers are encouraged and, in turn, savers are discouraged. Currently, you are not likely to get a very favourable rate on your savings and if you do, it is unlikely that it would outweigh potential earnings from investing in property. The low rates make borrowing, i.e. mortgages, cheaper in the long run, making property investment more affordable. This affordability directly translates into a higher rental yield from your property.
Where is your cash cow hiding?
As mentioned in a previous blog, When Bamboo grows, employ more pandas, a great way to secure such a high yield is buying property in need of a bit of TLC. A property in need of renovation is a fantastic way to pick up a bargain. You may need a bit of cash tucked away to get the house to an acceptable level of quality, but your net-spend could still be considered as a bargain. Every saving you make when purchasing your property affects your rental yield for the better.
A fantastic way of achieving these efficiencies is buying at auction, especially through an online auction. Not only are you most likely to find development opportunities at auction, but you have the opportunity to buy at speed with limited costs, getting a favourable price on the day without renegotiation. You can immediately identify a suitable property, in a location you don’t need to visit, with a favourable yield. You can bid with your head, without going to the trouble of leaving your sofa. This allows future returns and development scope to be controlled and managed with greater ease and speed.
Bamboo Auctions builds branded online auction platforms for auction houses, allowing buyers and sellers to exchange online, immediately at the end of a specified time period. For more information or to arrange an online demonstration call 0330 088 9659 or email hello@bambooauctions.com
