Return on investment: why property could be your best move

Rental market conditions continue to give confidence for landlords with both price growth and demand staying strong.

As we discussed in our recent 2022 predictions blog, the Portsmouth lettings picture remains bright with average rental prices up 5.3% last year. In Southsea, the figure was even higher, at 5.9%.

And there are many other indicators showing that property – for sale and for rent – remains a safe haven for precious investment funds in what looks set to be a low interest rate economy for some time to come.

Promising signs

Take build-to-rent, or BTR, for example. According to analysis by EG Radius, investment in BTR nationally has more than doubled during the pandemic.

It has been a dramatic rise. In the now far-off pre-Covid days of 2019, developers and investors earmarked capital funds of around £1.5 billion to build more than 6,600 new homes for rent. By 2020, the annual figures had jumped to £3.5 billion for 13,200 homes. The upward trend continued in 2021, with more than £5 billion in BTR investment due to create more than 22,300 homes.

The British Property Federation says the growth of the BTR sector is most evident in regional cities rather than London, so doing its bit for the notion of ‘levelling up’.

Real Estate Policy Director Ian Fletcher told the Showhouse news site: “BTR is not just about increasing property provision. It is a major economic driver, helping attract and retain skilled workers and serving as a catalyst for urban regeneration. The strong growth of the BTR sector across the regions will support the government’s levelling-up initiative and help revitalise town and city centres.”

Price growth

Of course, BTR accounts for just a fraction of the overall rental sector. The term refers purely to new build developments delivered specifically for rent, owned and managed by one landlord and extending to at least 50 homes.

So what are some of the indications about returns on investment in the rest of the property market?

That typical bell-weather, the average house price, is at a 15-year high according to the Halifax index – good news if you are an owner and want to sell up or borrow against the value.

For the same reason – limited supply versus high demand – average rents are also rising at their highest level in 13 years, with the number of potential tenants far outstripping the properties available.

Rental yield

For landlords looking to purchase buy-to-let properties, the key indicator is the health of the rental yield. This is a percentage return based on the monthly rent compared to the property value. A yield of around seven per cent or above is generally considered strong with the obvious proviso that individual properties will vary in their potential for all kinds of reasons. Aside from the condition and size of the property, ‘rentability’ is influenced directly by factors such as locality, commuting times to work and proximity to amenities such as shops, nurseries, schools and green spaces.

The property auctioneers SDL recently published a national ‘rental yield’ league table. Even without taking mortgage costs into account, it makes for interesting reading.

The good news for south coast landlords is that Portsmouth ranks as the third best city in the UK in which to invest in property. Only Manchester, at number one, and Nottingham are above us.

The average asking price for a monthly rental in Portsmouth is £1,427. Compared with the average property value of £242,330, this gives a potential yield of 7.07% – very favourable as against the scores of cities further down the table.

Given the upbeat picture from these and other indicators, perhaps the time is right to consider residential property as a serious investment if you haven’t done so already.

To discover how Chinneck Shaw can help you as a landlord, visit our ‘Let’ pages. You can also stay up to date on trends in the property market by receiving our quarterly newsletter.

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