The local property
market has been particularly fascinating over the last 12 years when we
consider what has happened to rents and house prices.
There’s currently much talk of what will happen to the rental
property market following Brexit.
To judge that, I believe we must look what
happened in the 2008/9 credit crunch (and what has happened since) to judge
rationale and methodically, the possible ramifications for long-term investors
in the property market.
An important yet
overlooked measure is the performance of ‘rental income verses house prices’
(i.e. the resultant yields over time).
Notwithstanding a slight drop in 2008 and 2009, the income from property
rentals has been progressively increasing over the last 12 years. Today, they are 14.5% higher than they were
at the beginning of 2005. In fact, over
the last 5 years, the average growth has been 1.6%pa. From a landlord’s point of view, increase in
average rental income is not to be sneered at. However, the observant readers will be noting
that we are ignoring an important factor – inflation.
Looking back to 2005, and we have a
property being rented for approximately £900pcm, and that is still being rented at £900pcm
today. While the landlord is not getting
any less income, this £900 is no longer worth as much. Let me explain, in 2005, £900 may have bought
a two-week 4* holiday in Italy. Yet, holidays
have increased in line with inflation (which has been 38.5% since 2005), so our
holiday would cost today £1,246 (£900 +
38.5% inflation = £1,246). Therefore, the landlord could no longer afford
the same holiday, even though having the same amount in pound notes from their
rental property.
This means when we compare rents in Stamford to inflation since
2005, Stamford landlords are worse off today when they receive their monthly
rental income, than they were in 2005 by 24% in real terms (rents increased
by 14.5% since 2005, less the 38.5% inflation since 2005 – net affect 24% drop).
However, rental income is not the only way to generate money
from property, as property values can increase. Although in the short term, cash flows are diminishing,
many landlords may be content to accept that for a colossal increase in capital
value.
Stamford Property Values have risen by 27.8%
since 2005
This equates to a reasonably salubrious 2.31%pa increase over
the last 12 years. Even more interesting,
is that this includes the 2008/9 property crash, this will make those Stamford landlords
and investors feel a little better about the information regarding rents after
inflation.
Moving forward, the prospects of
making easy money on buy-to-let have diminished, when compared to 2005. Last decade, making money from buy-to-let was
as easy as falling off a log – but not anymore.
It would be true to say, my ‘rental income verses property
prices’ study does lead to noteworthy thoughts. I am often asked to look at my landlords’
rental portfolios, to ascertain the spread of their investment across their
multiple properties. It’s all about
judging whether what you have will meet your needs of the investment in the
future. It’s the balance of capital
growth and yield, whilst diversifying this risk.
If you are investing in the Stamford and Rutland property market,
do your homework and do it well. While
some yields may look attractive, there are properties in many areas that do not
have the solid rudiments in place to sustain them. If you are looking for capital growth, you
might be surprised where the hidden gems really are. Take advice, even ask your agent for a
portfolio analysis, just like I offer my landlords. The majority of agents in Stamford and Rutland
will be able to give a detailed analysis of past and anticipated investment
opportunity (especially the awful effect of inflation) on your portfolio. However, if they can’t help – well, you know
where I am, and the kettle is always on!
David Crooke - 01780 484 554
david@upp-property.co.uk
Owner and managing director
Understanding People & Property
SALES & LETTING AGENTS
Stamford: 01780 484 554
Rutland: 01572 725 825
