Real estate investment returns – a positive for the future

Real estate investment returns, despite Brexit uncertainty, are still possible for investors. Jerald Solis, director of Experience Invest offers some thoughts on sectors to consider.

 Land and property stamp tax

Real estate investment returns potential hinges on one of the thorniest questions for those mulling over a property investment in the near future, that is the extent to which the UK’s departure from the European Union (EU) – deal or no deal – will impact the real estate market and wider economy.

This hesitancy is natural, however, a quick scan of the current state of the UK property market, and particularly its performance since the June 2016 EU referendum, should work to dispel many of these concerns. Indeed, many regions have performed strongly in price terms since the vote; according to the Office for National Statistics, the average UK house price stood at £214,000 in June 2016. By January 2019 – with scarce clarity about the terms under which the UK would leave the EU – this figure had risen to £228,000.

Questions undoubtedly still remain about how investors and homeowners will react to any potential fallout as a result of Brexit come 31 October 2019. However, it’s important to keep in mind that even if there is a short-term house price dip in the immediate aftermath of Brexit as the market naturally adjusts, the historical resilience of real estate suggests it will be positioned to recover. After all, property is a long-term investment.

An overview of the market

While we cannot ignore the fact that activity has slowed somewhat in areas like London, this is not reflective of the wider trends we are seeing in some of the UK’s leading regional hubs. One way of judging the health of the housing market is to look at transaction volumes, and the figures here speak volumes about ongoing confidence in the residential real estate market.

Even at the height of uncertainty after the failure of Theresa May’s government to get the long-awaited Brexit deal through parliament, the volume of property transactions taking place was significant. The number of transactions on residential properties with a value of £40,000 or greater was 101,170 in January 2019 – or 1.3% higher than a year prior, according to the UK Property Transactions Statistics.

With investors scoping out property opportunities in the UK, we also cannot paint a complete picture without delving into the current state of the private rented sector (PRS) – and in particular, the state of play in the multi-housing sector.

The proportion of households in the PRS is set to rise by 22% by 2023, and real estate consultants Knight Frank notes that the UK policy environment has become more encouraging for multi-housing development to meet the growing demand for privately rented homes.

Knight Frank expects the total capital committed to professionally managed private rented sector accommodation in the UK to reach £75 bn by 2025. This trend is already taking hold, with real estate services and investment group CBRE revealing that between January and March 2019, a total of £1.04 bn worth of investment was funnelled into the UK private rental sector to support Build to Rent schemes.

That should come as little surprise, given that an additional 560,000 households are expected to be part of the private rented sector by 2023.

What does this mean for investors? This high demand, coupled with increasing investment into the sector, means that there’s plenty of opportunities to find investment properties that offer high returns and capital growth. Demand is growing among all age groups and income profiles, which means that these opportunities span from purpose-built student accommodation (PBSA) options in bustling student cities, to private residential developments for young professionals seeking affordable living options beyond the remit of the capital.

Where should investors look for opportunities?

For investors seeking out the opportunities afforded in the expanding private rented sector, where should they be directing their search efforts? While the capital has faced some challenges in recent years, there is significant progress taking place in regional markets, driven especially by strong growth in areas like the Midlands and North of England. Rising regional hubs like Liverpool and Newcastle are certainly locations to watch, particularly as they could offer investors long-term rental yields and capital growth.

This largely comes down to two factors mentioned previously – namely, demand from students and working professionals. Liverpool, for instance, which is home to a number of renowned universities, experienced year-on-year price growth of 4.9% in June 2019 according to figures from Hometrack. This is the fastest rate in England, and second only to Edinburgh across the UK as a whole. On top of this, and despite the rapid pace of growth, the city continued to have the lowest average property price of any of the 20 cities surveyed.

The affordability of such properties when compared to those in the capital or South East means that renters, whether these are students or professionals, are increasingly drawn to such thriving cities. With such demand for privately rented property at a high, investors are able to secure a lucrative income stream in the form of reliable rental yields and increasing property values.

Similar patterns can be seen across other cities in the North like Newcastle and popular commuter hubs. Locations along London’s commuter belt, for instance, have emerged as a popular choice for both renters and investors. Boasting an enviable location less than 25 minutes from the heart of London, but without the hefty price tag, Luton has recently been garnering increasing attention, supported by a £1.5 billion investment project to transform the town.

Looking to the future

Examining recent statistics is helpful when it comes to assessing how well the property market has been faring, but how are investors themselves responding to the current state of the market? In June 2019, we questioned 831 investors, all of whom had investments ranging from £10,000 to £10 million in total value (551 of the investors had assets worth £1 million or greater).

The research underlined the lasting appeal of real estate as an asset class, with the majority (53%) of the respondents having some form of property investment. This made it the most common asset people hold, with the next most common asset class – stocks and shares – coming in at 48%.

In the aftermath of the EU referendum three years ago, some property commentators were quick to suggest that the market may witness an exodus of investors. However, ongoing confidence in the market serves to dispel these fears that never truly materialised.

Earlier in 2019, we also conducted a separate study of more than 500 UK-based real estate investors to gauge their property investment plans in the lead-up and immediate aftermath of Brexit. The findings were revealing of investors’ overwhelmingly positive sentiments. 39% said they are planning on increasing the size of their portfolio in 2019, with a mere 11% planning to reduce the number of assets they own.

So, what are the top regions that investors are looking to? London (35%) just beat Manchester (33%) when it came to the most popular cities, followed closely by Liverpool (25%) and Nottingham (15%) in third and fourth place. Meanwhile, Newcastle (12%) and Luton (11%) were also considered some of the most lucrative investment spots.

Delving further, the research uncovered the types of property that investors were considering purchasing this year. While houses (67%) and flats (54%) were predictably the most popular option, new-build residential properties look to receive a lot of attention, with 39% of respondents keen to invest in this area. At 24%, student accommodation properties also appear to be on the radar for many investors.

As a whole despite many doom and gloom Brexit predictions, there remains a clear appetite for real estate amongst both first-time and established investors. That’s why it is important that for those speculating whether property will remain a good investment, anecdotal and statistical evidence certainly points towards a positive future. It’s all about having a long-term view and recognising the allure of UK real estate as desirable asset for both domestic and international investors.

Jerald Solis is the business development and acquisitions director at property investment company Experience Invest.

Further reading: Property investment, rising wages, and higher employment – is the UK economy poised for a post-Brexit boost?

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