Young Index: Q2 2012 PRS Investor Sentiment
July 13, 2012
APPETITE TO INVEST IN THE PRS
The demand for purchasing additional investment property in London has remained broadly stable throughout Q2 with 44% of investors considering adding assets to their portfolios over the coming 12 months (fig. 1).
Sentiment towards PRS assets outside the capital has fallen back; 18% are now considering making purchases outside of the capital during the coming year, down from 24% in Q1 2012. For the first time since Q4 2007, more respondents are considering making overseas purchases (29%).
Of those not considering additional PRS acquisitions over the coming 12 months, the overwhelming majority state finance-related issues as the principal factor in their reticence to invest (explored later).
Perhaps unsurprisingly, respondents believe that prospects for capital growth and rental income in London outshine those across the rest of the UK.
Over the past two years, respondents’ expectations of capital value movements have fluctuated somewhat, but the trends over that period for property within, and outside, the capital have continued to polarise (fig. 2).
Positivity for London’s PRS capital values abounds: 96.6% of respondents to this quarter’s sentiment survey expect values of PRS property in London to rise or remain static over the coming 12 months, an increase of 11.2% on Q1 this year. This compares to just 41.4% who believe the same to be true for assets outside London, an identical figure as in Q1.
Turning to values, investors in PRS assets in London are expecting to see an increase in their value by an average of 2.0%, compared to a fall in capital value of 0.8% for assets outside the capital.
Irrespective of asset location, investors are positive about rental income. 98.3% of respondents expect income from London-based assets to increase this year, up from 92.7% in Q1 2012. Sentiment for income from UK PRS assets outside the capital is similarly buoyant. 83.5% of investors predict an increase in rental income over the next 12 months (fig. 3).
This translates to a rise of 6.2% in London but a fall of 1.2% for rental property outside of London.
Rental income is increasingly important to investors. In Q2 this year, 20.7% cited it as more important to them than capital growth, against only 8.1% in Q1 2011.
COMMITMENT TO THE PRS
Investors remain committed to the PRS; 94.5% have no intention of liquidating any PRS assets over the coming year. Of those who do, the vast majority will liquidate for cash rather than another investment class.
34.5% of investors are intending to hold their properties for at least the next 20 years and 58.2% for the coming decade.
The average anticipated future hold period in Q2 2012 was 14.3 years and on average, investors have held PRS assets for 6.5 years. It is clear that investing in the PRS is a long term position, borne out by the fact that 52.7% of investors are holding these residential property assets to bolster their pension provision.
Investors increasingly recognise the importance of property management in protecting and even enhancing asset value and income returns. This quarter, 81.0% cited the burden of property management as the principal reason for using an agent to manage their portfolio.
In Q1 this year, the percentage of investors predicting that the Bank of England base rate would remain static for the forthcoming 12 months fell by 14.4% from 58.3% to 43.9% as confidence in the economy’s recovery grew.
However, in Q2, sentiment has turned; 65.5% now expect the base rate to remain stable at the historic low of 0.5% through to Q2 2013. Even accounting for those who think a rise will occur before this time next year, the average base rate expectation stands at just 0.57%.
ABOUT YOUNG INDEX
Each quarter, through Young Index, Young Group polls investor sentiment among 500 of its Private Rented Sector (PRS) investment clients who hold UK property assets. If you are an investor and would like to contribute to future Young Index sentiment reports, sign up here.