Category Archives: Property Investment

Annual Student Property Report

A continuing positive outlook for the student property market and some interesting trends coming to the fore in 2014 are two highlights from the latest Knight Frank annual report for the UK student accommodation sector.

Over the next 12 months, Knight Frank anticipates rental growth of 3% in London and 2.75% in the regions, with investment returns stabilising.

Buoyed by a projected rise of 3% in the number of full-time students, and a structurally-undersupplied market, the sector is now seeing interest from a wider-than-ever range of investors, including US and Middle East equity sources.

Knight Frank has measured the difference in rents for the first time, finding those for purpose-built student accommodation (PBSA) are up to 75% higher than for HMOs in Oxford and Newcastle, and 56% higher in London;

The Knight Frank Student Index shows London rents are up 1.73% year-on year in the 13/14 academic year, while blended regional growth is 1.59% – a solid performance given the recent introduction of tuition fees;

Studio rents have grown marginally more quickly than rents for “en-suite” cluster flats. Students in London currently pay an average of £299/week for studio accommodation;

Average total returns for the year to September 13 were 7.8%; student property outperformed all other traditional commercial asset classes;

The start of this academic year saw all core UK markets effectively fully-let;

There are currently over 13,000 student bedrooms planned or under construction in London; however Knight Frank believes the future pipeline will be squeezed by the introduction of CILs;

The cities with the lowest supply of PBSA include Bath, Brighton, and St Andrews.

The sector’s performance track record has been underpinned by a lack of good-quality student housing in almost every market, and an increase in students demanding a “lifestyle” element to their accommodation.

The report finds there are clear opportunities for providers to add value through both design – including refurbishment of existing stock – and intelligent branding. This element of the sector has until now been overlooked, and student accommodation brands have a low level of recognition among students. By increasing awareness of their brands, providers can target specific market segments and achieve higher returns. Knight Frank also expects there to be some consolidation of operators in the management sector in 2014.

Confidence in the sector is evident, and demonstrated in a simple way by the schemes currently taking shape. There has this year been a trend for increasingly tall developments, some as many as 35 storeys.

Renting Is The New Retirement Choice

Pensioners are moving out of home ownership and into the private rented sector, a new report said.

The Prudential says that 42% of retired tenants are former home owners and their main reasons for selling up include paying off debts (40%), boosting retirement income (9%) and helping their children.

The Prudential report is independently borne out by a tenancy referencing firm, which says that there has been a large increase in the numbers of older tenants.

According to the Pru, two in five former home-owners were forced to sell up because of debt, while 19% needed to release funds to cover the costs of divorce or separation. Nearly one in ten sold up to use the money to fund their retirement.

However, on average, retired tenants are paying £423 a month in rent – two-thirds more than the average monthly mortgage payment made by a retiree. Their rental outgoings will account for nearly a third of the average expected retirement income of £15,300 a year (as measured by Prudential’s Class of 2013 research study).

A retirement expert at Prudential, said: “Renting in retirement can make financial sense and accessing property wealth to boost retirement income is a genuine solution for many. Our research shows that many retired renters are perfectly happy with this arrangement.

“However, retirees should be aware of the extra financial burden they could be taking on if they choose to sell up and rent.”

Only one-sixth (15%) of retired tenants choose not to own their home as a lifestyle choice.

The majority of retired renters (58%) have never owned a home and three-quarters of them plan to continue renting for the foreseeable future, says the Prudential report.

According to referencing service Legal 4 Landlords, which does work for both agents and directly for landlords, there has been a marked trend in older tenants. Two years ago, the proportion of tenants aged over 51 was 5%, while today it is 9.5%.

The proportion of tenants aged 41-plus, including those aged over 51, is now almost one-third, compared with one-fifth two years ago.

In contrast, referencing of tenants aged under 30 has fallen by over one quarter. Legal 4 Landlords thinks this is because more younger people are continuing to live at home for financial reasons.

Government To Invest £3 Billion In Affordable Housing

The UK government is to invest more than £3 billion in affordable housing but provided few details of how it will be spent.

Chancellor George Osborne, announcing his comprehensive spending review for 2015/2016, told the House of Commoms that billions will be spent on housing.

He also said housing benefit will be included in the overall benefit cap and a new social rent formula will see landlords able to increase rents by the consumer price index of inflation plus 1%, for a period of 10 years.

David Orr, chief executive at the National Housing Federation, described the social rent formula as a positive step. ‘This could help housing associations to start planning the construction of more homes and allow them to focus on tackling Britain’s desperate housing crisis,’ he said.

But Grainia Long, chief executive at the Chartered Institute of Housing, said it is concerned about the rent settlement because it could reduce landlords’ income and therefore their ability to invest in existing and new homes.

‘We are seriously concerned about the welfare cap and specifically the inclusion of housing benefit within it. We believe that housing benefit is affected by cyclical changes to the economy and placing a cap on this could limit help with housing costs at times when households need it most,’ she explained.

However, Mark Henderson, chief executive at Home Group housing association, said it ends income certainty for landlords and makes it clear what they can expect from rents over the coming months and years.

Jeremy Blackburn, head of UK policy at the Royal Institution of Chartered Surveyors, said that a £3 billion extension to affordable housing would go some way to kick starting construction of much needed homes.

‘Building of new homes is way behind target, with construction workloads at historically low levels. Recovery is still incredibly fragile. Well planned infrastructure projects commissioned in the right places and at the right time must deliver growth, homes and jobs in the next 18 months, providing immediate economic returns and much needed work for the construction sector,’ he added.

 

Seaside Property Prices Rise

The average house price in seaside towns rose by 63% over the past decade, to £197,938, according to the latest research from Halifax.

Since 2003, Porthmadog in Wales was the seaside town that recorded the biggest rise with the average house price increasing by 134% from £69,479 to £162,638 in 2013. The town, which is rich in maritime history, sits adjacent to the Snowdonia National Park and expanse of the Glaslyn estuary. Seaham (128%) and Newbiggin-by-the-Sea (120%) – both in the North East – saw the next largest rises, and now stand at £104,840 and £81,442.

Contrary to the recent performance of the wider housing market, eight of the ten seaside towns experiencing the biggest house price gains since 2003 are outside southern England. The other two top performers – Mawes (£369,224) and Perranporth (£262,113) – are in the South West. The others had average prices that were well below £100,000 in 2003, with prices rising sharply from a relatively low base over the decade.

Martin Ellis, housing economist at Halifax, said: “Seaside towns are highly popular places to live. They offer a unique lifestyle with a typically high quality of life and a healthy environment and as a result, living by the coast can come at a price.”

The average house price in a seaside town now stands at £197,938. This means that the much sought after life beside the seaside is 17% more affordable when compared to the average house price across England and Wales (£238,091).

The price performance of seaside towns was slightly below the 70% increase across the whole of England and Wales since 2003. However, there was a shift in the comparative performance of seaside towns, which outperformed overall prices in England and Wales in the ten years to 2012.

Despite the outperformance by northern seaside towns generally over the past ten years, all ten of the most expensive seaside towns in England and Wales are on the south coast with eight in the South West.

Salcombe in Devon (£570,378), which sits in the South Devon Area of Outstanding Natural Beauty (AONB) and Sandbanks in Dorset (£552,242) have the highest average prices with both also featuring among the most expensive areas of any description in the country, with both retaining their top positions from the 2012 rankings.

Contrary to the north’s outperformance over the decade as whole, southern seaside towns have fared better during the past five years. All top ten performers since 2008 are in southern England led by Aldeburgh in Suffolk, home of the internationally renowned Aldeburgh Festival of arts, which has recorded a 17% increase.

The majority of seaside towns in Wales (63%), East Anglia (60%) and the South West (57%) have an average price that is higher than the average for their county. In contrast, there are no seaside towns in Yorkshire and the Humber and the East Midlands with an average price above their county’s average.

Not all seaside towns boast high average prices. Three towns have an average price below £100,000 – Newbiggin-by-the-Sea in Northumberland (£81,442), Withernsea in Yorkshire & the Humber (£93,671) and Fleetwood in Lancashire (£99,210).

Blackpool – one of the most famed and historically popular seaside towns in England – features in the list of the ten least expensive seaside towns with an average house price of £101,715.

Rhyl (£116,874) is the least expensive Welsh seaside town. Lowestoft (£138,687) has the lowest average house price of seaside towns in southern England.

Ellis said: “The majority of seaside towns in Wales, East Anglia and the South West have an average house price that is higher than the surrounding area. This is not always the case though and good value properties can be found in many seaside towns, particularly in the South East and Yorkshire and the Humber.”