What are the trends in the South Wales residential marketplace that landlords need to be aware of for the year ahead? Red Key MD Jamie Langley explains all!
A recent report in the Daily Telegraph highlighted something everyone involved in the private rental market has known for a long time now: if you want a sound return on your investment, South Wales is a really good place to be.
Since 2010, rental yield (that’s the capital value divided by the annual income) is up to 5.1% in parts of South East Wales – one of the best returns in the country and notably higher than London, for instance, which has seen 4.79%.
Why? In part because house prices here are low relative to rentals. And partly because the laws of supply and demand apply: we have a large number of people wanting to live in rented accommodation but a major shortage of supply.
That keeps rents buoyant – even during what has been a poorly performing period for the economy.
How has Help-to-Buy affected the market?
Many people argue that landlords have been benefiting while young people find it hard to get onto the housing ladder – but that argument is only partly true. There was certainly a time when those with cash available were able to pick up the bargains in the housing market. But during the last couple of years, the Help-to-Buy scheme operated through the Welsh Government has levelled the playing field.
More than levelled in one sense, in that it has significantly pushed up prices at the starter home end, reducing investor interest and actually causing a shortage of rented properties – in turn strengthening rent levels. Probably not the impact the Government was looking for…
So what growth can you expect in 2016?
Any return on your investment north of 5% is a handsome one in today’s marketplace, which is why so many people have veered away from stocks and shares (which can go down as well as up, as we have recently witnessed), annuities (which can offer around the 5% mark, but you write off your capital), and the building society or bank account (which offer relatively paltry sums).
I would confidently expect 4% – to 5% to be the average rate of return in 2016 as well.
But of course, there is one ingredient that has to be taken into account: capital growth. Here, properties in the regions, including Wales, have not performed as strongly as London. But it’s still in distinctly positive territory – a handy bonus on top of the rental yield.
Again, it would take a major occurrence – such as a hike in interest rates – to dampen house prices to less than 2 – 3% in the year ahead here in Wales.
There are many who believe that London especially is due for a major correction in house prices – with foreign investors pulling out, the recently introduced stamp duty hitting million pound plus houses and the double whammy hoving into view of a 3% hike for BTL and second homes, together with reductions in interest rate relief and wear and tear allowances.
Some of these (in theory) could also apply to properties here in South Wales, but the macro economic conditions are very different.
We do not have an over inflated housing market – mortgage repayments relative to earnings are still (in historic terms) affordable. We don’t have swathes of homes owned by foreign investors who might be looking for safer havens for their money. And we certainly don’t have many million pound homes!
And how about stamp duty?
Yes, there’s no question that the new 3% hike in stamp duty will dampen returns for investors – but with 3% not an untypical annual rise in a house’s value, that should not act as a deterrent for anyone investing long term. Highly leveraged investors will certainly see their yields reduced from April 2017, but the vast majority of owners do not have large BTL mortgages – and those that do have the option to run them through a business.
So I don’t see too many seismic changes coming to the market in 2016 here in our corner of Wales. The fundamentals are still intact: the economy is fairly buoyant, large numbers of people still want to rent and we have more demand than supply.
Rent Smart Wales – and what to do about it
Are there not any flies in the Christmas pudding I hear you ask? Just one – and that is easily surmountable.
Rent Smart Wales came into force last month – at least parts of it did. It is a wholly commendable piece of legislation, in that it makes it harder (but not impossible) for the odd rogue landlord still out there to operate. And it’s important that the industry is seen to be fair to tenants – who are, after all, our customers.
But it will add a burden of work on anyone who owns property in Wales. You will need to register with Rent Smart Wales and (some time during 2016) you will also have to attend a training course in order to be licensed.
The good news for those that have better things to do with their time is that using a licensed agency like Red Key removes the burden of being licensed yourself.
And the very best news is…
To encourage anyone who has an empty property that either is currently not let, or with another agency, to come to Red Key, we are offering a rather special deal.
For a full management service, all new landlords coming onto our books in the next month will qualify for a very special deal of £54 pcm – and just £33 for rent collect only.
Come and talk to use in the next few weeks and you can lock in that exceptional deal for the future too! Wales has over 20,000 empty properties – while we have a long list of pre-qualified tenants waiting to fill them!
For any aspect of property management, just get in touch – including providing you with a no obligation assessment of what your property could fetch in today’s market.
Happy Christmas to you all from all the team at Red Key – and a very prosperous 2016!