The UK residential property market is ripe with opportunities for investors. Yes, the referendum vote to leave the European Union has generated a degree of economic uncertainty, but residential property has, nonetheless continued to deliver reliable yields and capital growth. And with demand for apartments and houses set to outstrip supply for the foreseeable future, investors can expect a strong performance from their property assets over the medium to long term.
But the UK residential property market is complicated. In some areas – notably London and the South East, property prices have risen to historically high and perhaps unsustainable levels while average rental values have hit a plateau, with further rises limited by stagnant incomes. This has created downward pressure on rental yields. At the same time, those who have bought into property at the top of the market may have to wait some time for significant capital growth.
Beyond the Hotzones
As a result, the real opportunities in the market lie outside the traditional hotspots of London, The South East and the centres of major cities. Instead the best yield opportunities can be found elsewhere in the country, particularly in the North and Midlands of England. This trend is underpinned by Government policy, which is seeking to boost economic growth in these regions through its Northern Powerhouse and Midlands Engine initiatives.
This requires investors to focus their attention on new, and perhaps unfamiliar, towns and cities across the UK. Places where there is an optimal balance between the cost of buying or developing residential products and the prices that potential occupants are prepared to pay in order to rent or purchase.
The problem is that once an investor begins to look beyond the overheated hotspots to the United Kingdom as a whole, it can be hard to identify the best deals.
Local property markets have their own rules – in terms of the economic background underpinning property and rental values – and equally importantly, their own players in the shape of estate agents, developers and landlords.
This is important, because it is often the case that identifying the most lucrative deal depends on a degree of insider knowledge. For instance, a landlord may be thinking of selling an apartment block. Once the asset goes on the market, pressure from rival bidders will doubtless push up the price and consequently put a ceiling on rental yields. A better deal might be struck if the existing owner is approached privately, ahead of a public sale, but to do that an investor will require local market intelligence. The same principle can be applied to other kinds of deals such as distressed sales, regeneration schemes or even student accommodation projects. Local intelligence allows the investor to get into the game early and also make a proper assessment of the financial aspects of the deal, based on an understanding of the area’s economy.
Arguably the most effective way to secure the best deals is to work with a partner that fully understands the residential property market in a regional, local way. A partner that can also act as an introducer.
The Route – Property provides that kind of partnership and is now offering institutions and family offices an opportunity to invest in the North of England and Midlands – regions where some of the best yields and returns in the country can be achieved.
The Route’s team of residential property professionals focuses on low cost units with a purchase value of £70,000 to £100,000. Typically these are located in a mix of multiple unit properties, ranging from small blocks to large off-plan conversions, containing 100 or more individual dwellings. The Route has access to around 700 units, with another 300 in the build phase and due to come on stream soon.
The focus on apartments has a number of advantages, not least in terms of the tax payable on purchase in the form of Stamp Duty. Because each unit is valued individually at less than £125,000, the duty is charged at the minimum of 3.0%. Buying into blocks also means that owners typically pay less (per unit) on maintenance and with multiple tenancies there is less exposure to financial loss should a tenant leave or default. Put simply, the fact that many other tenants are in situ, means any temporary loss of income represents only a small percentage of the overall revenues.
Local knowledge plays an important role in identifying opportunities. For instance, The Route’s team actively seeks out deals where properties have been repossessed, enables the purchase of high quality units at relatively low cost – again boosting yields and the potential for capital growth. And rather than adopting a generalist approach to investment across the entire North and Midlands, The Route sources deals in areas where there is an optimal relationship between purchase costs, rental values and yields. Often this means eschewing city centres for areas in the suburbs or small towns.
The management arrangements are flexible. Investors can either work with a letting agency recommended by The Route or move administration in-house.
The Midlands and the North of England currently offer some of the best deals available in the UK. By working with The Route – Property, investors can get access to those opportunities.
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