Inside Track has Britian's biggest residential investment portfolio, entirely of new build property.
A key finding of the study is a clear indication that the South East continues to provide the country’s strongest performing investor market despite the strong performance in recent years of buy-to-let in Yorkshire and the North East.
The average return on investment for the Inside Track Group’s 8,500 members now stands at 38.3%. Allsops LLP carried out an independent valuation of 265 developments throughout the UK during Autumn 2006. However, the South East, as the UK’s best performing region has delivered investors with a return of 47% whilst the Midlands lags on 22.6%.
Across the country, performance for 2006 has been largely better than expected, particularly in the South East where restricted supply has forced buyers to be increasingly competitive in their bidding compared to some other regions where localised oversupply has produced moderate price falls.
Anthony McKay, chief operating officer for the Inside Track Group, said: “Buy-to-let continues to increase in popularity as an investment class. This comes as no surprise as the returns over the past few years have been excellent. A buoyant domestic economy – despite the recent rise in interest rates – together with Britain’s ongoing housing supply crisis, suggest that conditions are right for further growth.
“However, the era of automatic and very substantial increases in capital growth is over. It is not a ‘get-rich-quick’ scheme. It has never been more important for both experienced and novice investors to get expert knowledge on how and where to invest; spread risk by diversifying their portfolio into different regions and property types, and, essentially, to view property investment as a medium to long-term strategy.
“Although some investors made money during the runaway boom in prices by ‘flipping’ – or selling on new build units as soon as they were completed – in today’s market this is unlikely to deliver a satisfactory return.”
UK Overview
The overall market has been better than many commentators suggested, and the outlook for 2007 remains positive for modest growth. Although recent interest rate rises are likely to have a moderate damping effect, the worsening imbalance between housing supply and demand, together with the maturing of residential property as an asset class, suggests that capital growth, whilst significantly reduced compared with the boom over recent years, will be buoyed by rental yields as an increasing proportion of households and would-be first time buyers are unable to get a foot on the housing ladder.
As market conditions continue to moderate over the course of 2007 in comparison to spectacular increases in previous years, the need for investors to become even more knowledgeable of local markets will become increasingly important if the best investment decisions are to be made.
Scotland
The Scottish housing market performed better than northern regions of England in 2006 and there was an increasing in new-build completions. Although there has been some oversupply and ensuing price-cutting in the Greater Glasgow area, rental demand remains positive and should underpin the buy-to-let market in 2007.
Yorkshire and the North East
The North East and in particular the Newcastle city centre market has been largely unaffected by the oversupply experienced by some other northern cities. Buyers can be found for most Quayside apartments and whilst prices have not risen, there has been no significant deterioration with rental yields holding up well. There is evidence of clear oversupply in Gosforth with a corresponding mark down in value. Buy-to-let markets in Middlesborough and Sunderland have yet to mature and have as yet seen little owner-occupier demand. The rental market too, has yet to be tested though local demographics suggest it will prove satisfactory.
Leeds: Leeds city centre market is suffering from a bulge in supply – particularly in units priced between £150,000 and £250,000. This, together with a lack of owner-occupiers has seen re-sales struggle to sell unless very keenly priced. Flats under £150,000 can generally find a buyer. Developments in the best locations are fairing reasonably well as rental demand in Leeds remains positive.
Sheffield: The market has stood up strongly and, although supply has significantly increased, city centre infrastructure improvements instigated by the city council have been a major factor in attracting investor demand. The rental market is also well supported by the large student market.
The North West
An increasing supply of investor properties in Manchester city centre – especially two-bedroomed flats without allocated car parking – has seen some deterioration in value. Pricing has to be competitive in order to achieve sales and there is some evidence of repossessions. However, as a maturing market, the city centre is attracting more owner-occupiers, helping to boost demand. The rental market is performing quite well and whilst rental growth remained static throughout 2006, tenant demand remains robust in most locations.
The Midlands
Whilst Leicester is showing resilience in terms of prices and rents, agents in Nottingham are reporting a substantial oversupply of investment properties – and not just in the city centre. This appears to be the result of too many new schemes reaching completion at the same time, as well as an immature rental and sales market. We anticipate no value growth in 2007 as this current oversupply issue works itself out.
Birmingham: The regeneration of the city centre has created an attractive and vibrant location in which to live, delivering solid demand from both purchasers and tenants. The scale of development currently underway needs to be watched carefully to avoid a Manchester-type situation of oversupply.
The South East
2006 was buoyant for the South East investment market, as it experienced the benefits of a ripple effect out of the capital which experienced a particularly strong year. There has been some localised oversupply, for example in Sutton and Woking, but overall value growth, rental demand and thus yields, have been positive.
