Partner Article

The residential asset class

“The professionally managed private-rented sector investment portfolio has consistently shown itself to be one of the strongest performing assets, even during the downturn when residential assets lost over 17% of their value.“ (Property Week: Analytics)

Research over the past few months has highlighted the correlation between the rise in UK house prices and the shortage of houses currently being built, tying them together to show that both are contributing factors to the overheating property market. This overheating market, particularly in London, is pushing an increasing number of younger people towards renting property instead of landing their feet on the property ladder themselves, which is positive news for the private-rented sector and landlords of residential property.

Residential property is the UK’s largest investment asset class and on a total returns basis has been the best performing investment asset over most timeframes over the past thirty years, offering better returns for less risk.¹ The property market is less dependent on the performance of the stock market than some other assets and more dependent on local factors, such as supply and demand.² The following chart illustrates the performance of each asset class, showing that residential market lets consistently perform to a high level, and thus provide long-term, steady returns to investors.

The UK’s private-rented sector has the potential to grow enormously, and with consistent return shown over the years, it proves that the residential market is a strong market to invest in.

Institutional investment into UK residential property has been considerably lower than that of the U.S. and the rest of Europe - figures show that they own just 1 per cent³ of the UK’s private rented housing stock. However, this could be set to change in the near future as potential for long-term capital growth and solid performance from rents due to the lack of housing stock and increasing demand. The current low interest rates make rental income available from the private-rented sector attractive in comparison to yields from other asset classes, such as retail, office and industrial.⁴

Whilst private investors have historically taken advantage of residential property, and continue to benefit from its strong and consistent returns, the rise in interest from institutional investors in the UK market will no doubt influence the development and expansion of UK cities, and indeed the growth of the residential sector as a whole, in years to come.

Sources

1 – BPF, 2 – The Guardian, 3 & 4 – Financial Times

This was posted in Bdaily's Members' News section by ERE Property .