Assetz® News - A profitable time

A profitable time

19th August 2008 |

Sceptics about buy-to-let investment have wondered in recent months how the industry can flourish at a time when the property market is in a dip and the value of the investments many have undertaken has fallen. It is a question that is not short of answers.

Two responses in particular have been directed back to the naysayers. The first is that buy-to-let is a long-term business. True, some have unwisely invested for the short-term and had their fingers burned. But others are looking to hold onto their property for many years, their strategy to be to ride out any troughs in the knowledge that there will be peaks in the years ahead. The key for such investors is having a solid enough financial base to cope with the inevitable dips that occur every so often.

A second answer is that a period when the overall property market is not doing well can be beneficial to investors. With sales to owner-occupiers falling in number, particularly for first-time buyers, the outcome is that many who would look to buy are renting instead. Hence demand increases.

Today the Royal Institution of Chartered Surveyors (Rics) published figures indicating that this trend is growing by record amounts. Its July survey has shown a significant increase in the majority of chartered surveyors reporting a rise in the numbers of landlord instructions over those recording a fall in the latest quarter (43 per cent) compared to its predecessor (30 per cent).

Such a pattern was repeated for other indicators - the majority for tenant lettings was up from 30 per cent to 37 per cent. For new instructions the figures were 47 per cent for houses and 39 per cent for flats, the fastest increase ever recorded by Rics. Another record was the low number of landlords looking to sell up when existing tenancies end, at 2.1 per cent.

Commenting on these trends, Rics spokesperson James Scott-Lee said: "The lettings market is booming with many vendors opting to rent their property while sales in the housing market continue to dry up. Many are willing to 'hold' and await the return of capital appreciation. Becoming a landlord is now an increasingly profitable option with rising rents and yields offering good returns."

The only downside that could be on the horizon is a possible slowdown in rental growth through a rise in supply of accommodation, Mr Scott-Lee warned.

However, there are a number of specific areas that are reporting particularly high returns. Student lettings, for example, is one, according to organisers of next month's Property Investor Show in London. Research for the show indicated that the top ten university locations offered an average return of 7.9 per cent, compared with 6.4 per cent for all buy-to-let. The best of these was Nottingham at 10.19 per cent, followed by Durham with 9.23 per cent.

Nick Clark, managing director of the show, said: "Investors may think that they are buying into a weak market, but as this research shows rental yields are on the increase and buy-to-let investors have a great opportunity to capitalise on the increasing demand for student accommodation, whilst taking advantage of lower house prices."

So while some talk of doom-and-gloom, it seems the buy-to-let market has plenty of life and opportunity in it just now.