PRS Investors are Cautiously Optimistic

Young Index

Young Index

Each quarter Young Index polls investor sentiment among 500 Private Rented Sector investors who hold UK residential property assets.

At first glance, results from Young Group’s Q1 2011 survey present a picture of unbridled positivity, led firmly by the capital, but dig a little deeper and it’s clear that a hint of caution does still remain.

Appetite for acquiring new assets remains high with up to a third of investors seeking to add PRS property stock to their portfolios within the next 12 months in London.  However, outside of the capital, this figure plummets to only 9%; a far cry from Q1 2009 when 42% of investors were on the hunt for investment property in the regions.

Percentage of Investors Considering Purchasing Additional Property

Percentage of Investors Considering Purchasing Additional Property (source: Young Index Q1 2011)

The vast majority of investor l andlords expect to see capital growth

and rental rises over coming year. In fact, a full 100% of investors predict their London property will see rents rise through 2011 and 90% expect UK property outside London

to see increases too. Expectations for capital growth follow a similar pattern.

85% of investors predict prices will be at current levels or above by Q1 2012 for property in London, compared with only 37% for property outside London.

Percentage of Residential Property Investors Expecting Prices to Rise or Remain Static

Percentage of PRS Investors Expecting Prices to Rise or Remain Static (source: Young Index Q1 2011)

But this almost blanket positivity for the London market masks the scale of expected change.

Young Group’s investor landlords predict their property in London will increase in value by 3.4% over the coming year, compared with a drop of 1.2% for property not in the capital.

 The rental market is thought to remain similarly polarised with London rents out-performing regional rents by a factor of 4:1, increasing by 2.0% compared to 0.5%.

12 Month Base Rate Outlook

12 Month Base Rate Outlook (source: Young Index Q1 2011)

The 12 month outlook for base rate among PRS investors saw its first hike in three years, up to 1.37% from the relatively stable 1.15% long term average of the past 12 quarters.

 This first real indication of change in sentiment suggests that investors expect rates to increase earlier than previously thought; indicating a belief that the economy is becoming stable enough to support such a move by the Bank of England’ s Monetary Policy Committee.

The long term nature of investment into the PRS was highlighted once again this quarter, with the intended hold period for residential property assets averaging 13.2 years.  In fact, 57% of investors expect to hold for more than 10 year and 22% for more than 20 years.

Average Hold Period (Years)

Average Hold Period (source: Young Index Q1 2011)

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