What’s actually going on with the property market (in 4 charts)
You can’t miss the noise about the property market in the press, but it’s often difficult to find the signal in that noise, and decide what, if anything, to do about it.
This article will look at three main factors impacting the market:
- The key role rental income plays in property market returns
- The different opportunities available in different regions of the country
- The long term imbalance of supply and demand
How we view the market
1. Rental income is a key component of returns from residential property, it’s currently higher than inflation, and it’s more resilient than income from commercial property in a downturn.
The press rarely includes rental income in their reporting of how the housing market is performing. Rightly so, since most housing in the UK is owned by occupiers, who don’t receive rent.
When property is owned as an investment however, rental yield is key
In Bricklane’s property funds, rental income increases returns by 2.5%-2.9% on top of capital growth, net of fees*. When interest rates on cash are averaging 1.5% (Source: Bank of England), the rental return from property alone can make it an attractive investment. Unlike with a Cash ISA, with all investing, your capital is at risk.
Residential rents have typically risen in line with inflation, providing some insulation against the future, and have proved more resilient in recession than commercial rental income. After all, people don’t stop needing somewhere to live during hard economic times, but companies may well need less office space.
For these reasons, hardened property investors invest in residential property with a pure income focus (rather than worrying too much about what’s happening to prices in any given month).
2. There are different opportunities in different regions of the country.
Bricklane offers customers investments in Manchester, Birmingham and Leeds, areas with long term potential and strong rental yields, alongside the buyer’s market in London.
In a market in which ‘location, location, location’ is a cliché, it pays to remember that different areas behave very differently. Market drivers of both price and rental performance vary significantly between Manchester and Cardiff, London and Newcastle etc.
The areas in which Bricklane currently operates offer investors distinctive investment opportunities:
Leeds, Manchester and Birmingham (the Regional Capitals fund)
Strong momentum on price, rents and transactions
These cities offer an outstanding quality of life, enjoy excellent transport links, and are set to further benefit from significant government investment in infrastructure (like HS2). Alongside, employers such as the BBC and Sky are continuing to invest in the areas.
In the short-term, these cities have been performing well:
Birmingham has seen the third highest capital growth in the UK at 5.9%, with Manchester coming in sixth at 5.8%, and Leeds in seventh with 5.7% (Source: Hometrack, correct as at 22/02/2019).
Transaction volumes also continue to hold:
Bricklane gives investors access to the momentum of these well-performing markets, in a tax-efficient way, without the hassle and risks of having to invest in physical property themselves.
London (the London fund)
Opportunities for the professional buyer, with transaction volumes down
In recent years, London has experienced significant growth in property values, with the average home now at almost £500k. Recently though, average price growth has stalled, at around 0.6% annualised over the past 2 years.
It is worth remembering that the average growth figure for London includes all homes — from the ‘mainstream’ ones right through to prime properties in areas such as Knightsbridge and Marylebone. Prime property has done particularly badly in recent years, falling by 18.4% since their peak in 2014 (Financial Times, October 2018), while mainstream property (the type that Bricklane buys) has done rather better.
Alongside the slow-down in price, there has been a steady drop-off in transaction volumes:
What we are seeing is that only vendors that have a good reason to sell are doing so, which opens up strong acquisition opportunities for the professional buyer.
Through Bricklane, investors can exploit the lack of momentum in the London market as a professional buyer — when we buy properties at discounts from motivated sellers, our investors benefit. This is why our London fund has generated 10.6% to date since launch in July 2017 (correct as at 14.2.2019). With Bricklane, investors access the opportunity in the market with smaller sums than would be required to buy a whole property, or even drip-feed money into the market.
3. The long term balance of supply and demand means we believe residential property is a strong long-term opportunity
Whatever the month-to-month movements in the market, it remains the case that there is not enough mainstream accommodation in the UK to meet demand.
If you believe that this trend is likely to persist, then residential property could be a very strong long-term investment, with the current market conditions providing a good time to buy in.
What does this mean for investors?
History shows that when markets are booming, many investors make money. When markets are less straightforward, it pays to consider your approach.
With punitive tax changes against buy-to-let adding to existing issues of risk and hassle, the market conditions do not favour do-it-yourself investment in rented property.
Rather, we provide the following opportunities through Bricklane:
- Benefit from tax-efficient rental income by investing through an ISA or a SIPP (pension)
- Geographically diversify through investing away from home
- Access market momentum in the Regional Capitals. Or benefit from opportunistic purchases in the slower moving London market
- If you already have buy-to-let properties, but are sick of the hassle, or tax-inefficiency, consider how Bricklane could help you rationalise them: https://bricklane.com/buy-to-let
We started Bricklane to make the property market work better for individuals. Bricklane gives people access to the market in a way that’s tax-efficient, low cost, more flexible and diversified than traditional property investment. Alongside, we are specialists at acquiring properties, seeking individual opportunities and areas with strong sales and rental demand. In today’s market conditions, Bricklane’s property intelligence and expertise are all the more valuable for investors.
It is clear to us that there are plenty of potential opportunities for the savvy investor who takes a long term view of the asset class. However, it’s important to note that current market conditions and investing may not suit everyone’s risk appetite.
Visit https://bricklane.com to invest now, or contact us to learn more and discuss your investment options. Our phone number is 0203 1111 432, and we’re available Mon–Fri, 9:30–5:30
As with all investing, your capital is at risk.
Your investment may go down, as well as up. Although the shares are listed, if you want to sell them, there is no guarantee that you will find a buyer within a time-frame or at a price, acceptable to you. The REITs invest in residential property, which are not highly liquid assets. Rental yields and dividends may be lower than estimated.
Tax rules and allowances depend on individual circumstances and may change. The opinions contained within this blog do not constitute investment advice. Bricklane.com does not give advice. If you are unsure about whether investment is right for you, you should seek independent advice before investing, including tax advice.
Past performance is not a reliable indicator of future returns. Fund performance is net of annual management fee and gross of investment fee (2%). Annualised performance is made up of blended performance across both funds from their launch to 31/10/2018. The Regional Capitals fund returned 8.7% in Year 1 and 6.3% in Year 2. The London fund returned 9.6% in Year 1.
*In addition to rental income and Bricklane fees, total returns also include increases or decreases in property values, and transaction costs like Stamp Duty Land Tax (SDLT). This means total returns could be higher or lower than the rental income figures quoted.
This promotion is issued by Bricklane Investment Services Ltd. Trading as Bricklane.com which is an appointed representative of Gallium Fund Solutions limited (reference number: 487176), which is authorised and regulated by the financial conduct authority.
