West Midlands a hot spot for property investors

The West Midlands has been identified as a property hot spot for investors looking to cash in on the current boom in the private rented sector (PRS).

Analysis by property consultants CBRE found that out of 21 cities across the UK, Birmingham, Coventry, Stoke-on-Trent and Wolverhampton offered some of the highest returns on rental properties for investors.

In the West Midlands, Coventry has the highest gross yield at 6.3 per cent, closely followed by Stoke (6.1 per cent), Birmingham (six per cent) and Wolverhampton (5.8 per cent). The highest yield was in Leicester, where investors can expect returns of 6.4 per cent, compared to the lowest, in Edinburgh, at just 3.8 per cent.

According to CBRE’s research, the private rented sector has grown dramatically over the last decade, accounting for 70 per cent of occupation, while the owner-occupier market has continued to decline.

There are now around 3.4 million rented homes in England, representing 16 per cent of the total housing stock. Over the last two years alone, rental households have increased by 12.5 per cent, or 370,000.

In comparison, the number of first-time buyers has fallen dramatically in the last ten years. Only 194,000 first-time buyer loans were secured in 2010 compared with 464,000 in 2000. Furthermore, the share of lending to first-time buyers has declined from 41 per cent to just 36 per cent.

CBRE estimates that the total number of first-time buyers priced out of the market over the last decade is in the region of 1.4 million, with a large share of these turning to the private rented sector.

As a result, pressure on demand has led to a steady increase in rents, with data from Propertyfinder suggesting that average rents have increased by 4.4 per cent this year.

Jonathon Matthews

Jonathon Matthews, a director in CBRE’s valuation advisory team in Birmingham, said: “Current demand is especially high in the private rented sector, which largely reflects underlying market conditions whereby would be first-time buyers are turning to the rental market as a more affordable alternative.

“Restrictions on the mortgage markets, in particular high deposit requirements, mean that only those with parental assistance or big bonuses are able to get a foot on the housing ladder.

“For investors, the increase in demand for PRS property is good news. According to the Investment Property Database, residential returns are favourable compared with other assets. For example, PRS has outperformed commercial property and equities both in terms of volatility and total return, with average returns of 10.5 per cent over the last decade.

“With Birmingham, Coventry, Stoke and Wolverhampton offering some of the best yields on PRS property in the UK, the West Midlands will definitely be on investors’ radars.

“Broadly speaking, yields are higher in these cities because they are characterised by relatively low capital values. However, income yield is only part of the investment equation. Other factors such as capital growth, the underlying economic backdrop and relative maintenance costs (which is lower in northern cities) also need to be taken into account.”

Mr Matthews said the Government needed to do more to support PRS investment and questioned its focus on owner-occupation, as outlined in the Government’s new housing strategy.

“Whilst the Government may wish to focus on owner-occupation because it is what people want and aspire to, we cannot lose sight of what people actually need,” he added.

“We consider the private rented sector to be a critical plank in the provision of housing supply and the UK is currently suffering from an absolute shortage of places for people to live.

“There have already been a number of independent reviews to analyse the barriers to large-scale investment in the private rented sector, which could deliver the homes to meet demand, and what we need now is action.”


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