Quarterly Property Investor Review Current UK Property Market The Rental Market Why Edinburgh Case Studies Property ROI v Other Investment Types Why Choose Glenham Property
Property Investment Guide Current UK Property Market Now the fallout from the Brexit vote has had time to settle and the new LBTT surcharge has also beenunderstood and absorbed, how might things play out for investors in 2017? There are a number of socio-political factors playing out on the world stage that could impact on the property market this year, these include the Trump effect on the wider economy, elections in France and the triggering of article 50. In a recent PricewaterhouseCoopers report on the housing market they forecast a deceleration in house price growth across the UK to 1% in 2017. But prices should still rise and a house price crash is not being predicted. In the report housing affordability for generation rent was also investigated and it was found that buyers may now have to save for 19 years to buy their first home (assuming the deposit is to be raised entirely from their own savings without family assistance). In 2000, the same group would have been able to buy after saving for just 6 years; and in 1990 it took only around 2 years. Thus people are looking to rent for longer which in turn means demand levels should remain high. The changes to mortgage relief starting in April this year will also impact on landlord s profits but interest rates remain at a historic low so borrowing remains cheap and thus can go some way to mitigate against increased tax costs. The average price of a residential property in Scotland was 166,624 in 2015-16, an increase of 19.7 per cent when compared to the average price of 139,207 recorded in 2006-07 (source Registers of Scotland). Although there was a steady increase in average price from 2012-13, the last financial year 2015-16 showed a slight decrease. Edinburgh average price was in 2015-16 compared to 227,967 2006-07, an 196,336 inincrease of the.1% over 10-year period. 16 The average house price in Scotland went up by 19 April 2006.7% between and March 2016 to 166,624. Source: Registers of Scotland Report Page 2
Current UK Property Market Property Investment Guide Capital values in Scotland are not over inflated and these historically low interest rates and it is the shortage of suitable housing particularly family-sized homes and affordable first-time buyers homes that will keep house prices rising. Though a note of caution The Bank of England has forecast that inflation will rise and we are seeing signs of this already. The Bank has forecast that it could reach 3% by the end of 2017 and in a bid to curb this; there is a strong chance that interest rates will go up, so this is worth keeping in mind if an investor is looking to refinance and advice should be taken. Martin Ellis, Halifax s housing economist, says: Despite the high level of uncertainty, UK house prices should continue to be supported by the shortage of property for sale, low levels of housebuilding and exceptionally low interest rates. In Scotland we continue to face an undersupply of housing which has been a factor in the rise ofthe private rental sector with the nation s owner occupation rate dropping by more than 5 percentage points since 2005 to about 60 per cent this year. The property market has proven to be incredibly resilient over the last couple of years and despite the shocks and dire headlines in the press house prices haven t crashed, the housing market is still alive and operating and confidence is returning. We have also seen that the UK economy has remained resilient, in the short term at least, and the panic we saw earlier in the year has subsided and businesses and consumers are feeling more positive.
The Rental Market Property Investment Guide According to the latest Countrywide Monthly Lettings Index rents grew by 1.6% in 2016 across the UK to reach an average of 927pm, the lowest annual increase for seven years and half the rate of 2015 (3.1%). In the most recent Citylets report it was reported that the national average rent in Scotland had fallen by 0.9% over the year, though it would seem that this has been due to the significant drag created by the decline in the Aberdeen market. There are some pointers to show that the market in Aberdeen has finally come out of the doldrums and is showing signs of readjustment and settling at a new level and hence we might expect to see positive growth in 2017. Source: Citylets Report Average times to let have also remained fairly static at 17 and 21 days for the one and two bed markets respectively as the levels of demand for rental property remains high. Source: Citylets Report Page 4
The Rental Market Prospects for Private Rented Sector Property Investment Guide 24.3% growth in residential rental market in next 5 years across the UK Private Rented Sector households to increase by over 1.2 million by 2019 Average gross yield of 5.1% for residential property in the UK Demand outstripping supply Source: Savills Residential Research, Autumn 2014 Recent UK Research 25% tenants don't know if they want to buy a home 30% move to upgrade their property 62% of 18-24 year olds want their utility bills rolled up into the rent 71% think transport links are the most important factor when choosing a property Source: Knight Frank Tenant survey 2016 Change of Population Increase by 28% from 2012 to 2037 Increase from 482,640 to 618,975 Scotland population to increase by 8.8% by 2037 Number of people in all age groups to increase Page 5
Why Edinburgh The Edinburgh Rental Market The Citylets Quarterly review shows rents in the PRS took an unusual dip in Q4 of 2016 with the mean rent in Edinburgh dropping back from a high of 1014 last quarter to 984 PCM however, this still equates to a year on year increase of 3.6%. Source: Citylets Report It will be interesting to see if the recent dip experienced in Edinburgh is evidence of the market cooling, or is it just down to seasonal pressures? Since 2014 rents in Edinburgh have outstripped inflation and there is an argument to say that affordability is important and while rising rents might be attractive in the short term in the long term this is not the case especially if incomes are not rising in line with rents. Over the past 10 years, all local authority areas recorded an increase in average price and the City of Edinburgh consistently held the highest average price across the decade, with the exception of 2013-14 when both Aberdeenshire and East Renfrewshire surpassed the capital. Average prices in Edinburgh were 227,967 in 2015-16 compared to 196,336 in 2006-07, an increase of 16.1 per cent over the 10-year period. Page 6
Why Edinburgh Source: Registers of Scotland Report In 2016 average capital prices increased by 5.2% in the capital with an average 5% rise across East Central Scotland. In line with most other market commentators we believe that prices should continue to rise but slow down probably to rates nearer 2% or 3%. We also believe there may be a moderate increase in the supply of properties coming on to the market. But since demand already outstrips supply by a considerable margin this will only act to slow some of the higher levels of capital increase we have seen on 2016. The private rental sector has now become a very important tenure for several demographic groups, especially for those at the younger end of the spectrum. As already discussed issues around affordability and lending levels have resulted in levels of owner occupation declining in all but the older age brackets. This, combined with limited new build supply in the economic centres, has had a strong impact on rental values. Hence the underlying market fundamentals in Edinburgh remain strong, there is a shortage of housing with an increasing population of both students and professionals looking to live, study and work in Edinburgh. The PRS already accounts for 27% of households in Scotland and there is anticipated growth of over 300,000 households across all tenures throughout Scotland in the next 20 years. The result is demand for good quality rental property looks set to remain strong. Page 7
Case Study HMO 3 bed flat - EH3 280,000 3 Bedroom Flat 65% LTV 100% Equity Deposit/Payment ( 98,000) ( 280,000) Initial Outlay ( Legal Fees, Search Fee, Mortgage, Certificates & Contingency) ( 21,585) ( 21,335) Total Cash Investment ( 119,585) ( 301,335) Monthly Rent 1650 1650 Annual Income (including 4% void period) 18,180 18,810 Adjusted Yield (4% void) 6.72% 6.72% Annual Costs (including management, insurance and mortage interest) ( 9,293) ( 2559) Annual cash surplus (int 4%) 9516 16,250 Monthly cash surplus 793 1354 Sales Value at end of five years assuming 4% annual appreciation 340,663 340,663 + five years annual surplus 47,584 81,254 Total 388,247 421,917 Less sales fees and outstanding mortgage ( 190,517) ( 8517) Balance Remaining 197,730 413,400 Increase in Equity 78,145 112,065 Total Return 65.35% 37,19% Average Return Per annum 13.07% 7.44% Disclaimer: Please remember that past performance of a property investment is not necessarily a guide to future performance. The value of an investment as well as the income from it can fall as well as rise as a result of market fluctuations. All calculations above are meant as a guide only, whilst every care has been taken to provide an acurate picture of future performance, Glenham Property Management Limited can accept no responsibility or liability for the performance of any property. Page 8
Case Study 1 Bed flat - EH7 125,000 1 Bedroom Flat 65% LTV 100% Equity Deposit/Payment ( 43,750) ( 125,000) Initial Outlay ( Legal Fees, Search Fee, Mortgage, Certificates & Contingency) ( 10,195) ( 9,945) Total Cash Investment ( 53,945) ( 134,945) Monthly Rent 690 690 Annual Income (including 5% void period) 7,866 7,866 Adjusted Yield (5% void) 6.29% 6.29% Annual Costs (including management, insurance and mortage interest) ( 4,279) ( 1,273) Annual cash surplus 3586 6592 Monthly cash surplus 298 549 Sales Value at end of five years assuming 4% annual appreciation 152,082 152,082 + five years annual surplus 17,932 17,932 Total 170,014 185,046 Less sales fees and outstanding mortgage ( 85,052) ( 3802) Balance remaining 84,962 181,243 Increase in Equity 31,017 46,298 Total Return 57.5% 34,31% Average Return Per annum 11.5% 6.86% Disclaimer: Please remember that past performance of a property investment is not necessarily a guide to future performance. The value of an investment as well as the income from it can fall as well as rise as a result of market fluctuations. All calculations above are meant as a guide only, whilst every care has been taken to provide an acurate picture of future performance, Glenham Property Management Limited can accept no responsibility or liability for the performance of any property. Page 9
Property ROI & Other Investment Types MSCI Inc.a leading provider of investment decision support tools worldwide, announced that it has recorded a 7.1% total return in 2015 for the UK market let residential sector as indicated by the IPD (Investment Property Data Bank) Annual Residential Property Index. Mal Hunt the Executive Director at MSCI commented: Unlevered UK market let residential generated a solid 7.1% return in 2015, with diverse geographic performance as London returns decelerated year-on-year and South Eastern, South Western and Midlands market returns accelerated. He goes on to say Over the past 15 years UK market let residential has performed very favourably on an absolute and risk- adjusted return basis, generating average annualized returns of 10.5% per annum and average rental growth over the period of 2.7% p.a. on par with RPI inflation. In the report Northern England and Scotland saw a second year of positive returns (5.2%) since 2007 with a stronger return than Central London since 2008. It is still too early in the year to look at the overall picture of how property as an asset class performed in relation to others during 2016 but historically it has proven to be a robust investment offering both a capital uplift element along with an income and can often generate overall returns on investment of 10% or more. Page 10
Property ROI & Other Investment Types It s not hard to determine that property investment, and especially residential, can offer a more stable stream of income. However, some bond markets can show a yield of approximately 4-5% and the same is true with the stock market. With the new tax regulations being imposed on property investors, it will be sensible to have a diversified portfolio. Having an investment in property should help to offset the uncertainty of equity and bond markets and it can still allow an investor to earn potentially higher yields. There is risk involved but this is true of any investment and can be mitigated against by applying an investment strategy based on a holistic approach ensuring the client buys the best performing asset possible. The route to market is becoming increasingly complex and for an investor to benefit from the high levels of returns that can be achieved they should look to seek best advice from people who understand the market and can help dodge the pitfalls. With Glenham Property's 360 property investment approach, you can buy, grow and protect your property portfolio with confidence. Page 11
Why Choose Glenham Property Over 20 years experience in the Edinburgh property market Free advice & personal service Industry qualified & accredited by industry bodies Member of ARLA, NOFPP Client Money Protection Scheme & Property Ombudsman Bespoke service for investor clients Our Property Search and Acquisition Service offers the following: Dedicated Property Consultant Access to our exclusive 'off market' properties Full market assessment of all properties meeting your investment criteria Full investment analysis of shortlisted properties Viewing of shortlisted properties. Access to our Financial Consultant who will do a financial review Help in negotiating offers and liaising with solicitors Get in touch: t f + in Page 12