It has been 2. 5 months since Brexit. By the end of Sept, the government will start to think steps to invoke Article 50, the ‘divorce process’ that will trigger the UK’s departure from the EU. The property market was among the sectors hit hardest by the referendum, with seven commercial property funds freezing trading within weeks, Reuters reports. However, some trends have emerged that allow for a better observation of the property sector, namely:
- UK property market players and investors are still confident about the future prospects of the market. Regional cities like Manchester & Liverpool continue to outperform London
- Alternative/specialist property like UK student property/purpose built student accommodation (PBSA) and hotels gained greater traction among investors due to its long leases and liquid returns
- Private rental sector remains significant as housing supply unable to keep up with demand
i. Future prospects of the market looks good. Regional cities like Manchester & Liverpool outperform London
Indeed, the first post-Brexit updates from property companies indicated greater caution. However, property auctioneers Network Auctions said that in the months since Brexit, little has changed in terms of investor confidence. There has emerged conditions favourable to investors such as the low inflation and low interest rate. Overseas investors are also taking advantage of the low pound.
New data shows that the UK’s housing market, despite having slowed down, is showing signs of healthy activity and resilience.
Using data representative of 90% of properties in the UK’s market, it was observed that the total number of properties had risen on 8th August compared to 22nd June with 866,179 properties were for sale across the UK before the vote. Readings on 8th August shows this number increased by 1.7% on the market, but with less properties under offer (decrease of 4.3%) versus pre-Brexit.
The average asking price for a UK property also rose by £1,040 from £240,470 on 25th July to £241,510 in August while the average asking price for all properties for sale on the market had increased by 3% to an average value of £247,026 in the same period.
The latest Hometrack UK Cities House Price Index reveals that amid the annual rate of house price inflation slowing down by 9.5% in July after 12 months of higher growth across 20 cities in the UK, this is not the case in the large regional cities in the north of England and Scotland. The rate of annual house price growth in the Manchester, Liverpool, Leeds, Birmingham and Nottingham continues to rise by 7% – 8%.
ii. Increased interest in alternative/specialist property sectors e.g. UK student property (PBSA)
Reuters reports that property investors are are now favouring alternative property such as student property (PBSA), hotels and hospitals. Alternatives accounted for 16% of the total UK property investment in July — an increase from 13% in Q2.
Office and retail total returns fell 3.7% and 3.2% respectively in July while returns from alternative assets were down by only 1.4% in recent months, said CBRE Group Inc. Additionally, CBRE also observed rental growth for alternative assets while traditional property assets saw none.
Alternatives have gained traction due to their long leases and steady tenants, and tend to be less risky and more defensive, compared to traditional commercial property like office and retail spaces.
The PBSA sector demonstrated its comparative resilience during the global financial crisis, showcasing its strong fundamentals. Earlier this month, the A-levels results announcement showed some 424,000 students receive confirmed places in their respective universities, with the number of EU students increasing by 11% to 26,800 despite fears. Note: the UK is not dependent on EU students who represent only around 6% of full-time students.
The sector will continue to remain resilient, with demand for well-located student housing schemes remaining strong, as structural undersupply underpins rental growth (JLL UK Student Housing Quarterly Bulletin 2016 Q2 Review).
iii. Private rental sector significant as housing supply unable to keep up with demand
The proportion of private tenants rose from 11% in 2003 to 19% last year. In Greater Manchester, it rose from 6% to 20% over the same period.
Much has contributed to the private rental sector, such as the relative unaffordability of house prices which corresponds with an acute shortage in housing supply and social housing. The fall in home ownership, according to data from non-profit organisation Resolution Foundation, is at a 30-year low, and corresponded with the rise in renting from private landlords.
Following the Brexit vote, the rental market remains steady as rents, supply and tenant demand did not significantly change in July. The latest monthly report released by the Association of Residential Letting Agents (ARLA) found that whilst just 12% of agents reported a dip in rent, a staggering three quarters (77%) saw no change in rental costs.
In a similar fashion, the supply of properties and demand for housing remained unchanged immediately after the vote as two-thirds (67%) of ARLA members reported no change in supply, and a further 64% reported no change in the number of prospective tenants looking for properties.
However, a shadow of ambiguity still hangs over the rental market as nearly half (45%) of letting agents witnessed uncertainty from landlords looking to let properties. Fewer entrants to the rental market could put further pressure on rents, as supply falls short of the substantial demand from tenants.
Looking forward, with the current lack of housing to buy, it does appear that the rental sector is going to remain significant for a while.
CSI Properties (Cornerstone International) proudly promotes international investment property with high yields at low risk. Our portfolio comprises residential and purpose-built student property in cities across the United Kingdom (London, Luton, Manchester, Liverpool, Newcastle, York, Glasgow, Scotland; Sheffield, etc); Australia (Melbourne, Perth, Brisbane) and Thailand (Bangkok). Our projects are concentrated in high-growth areas with great educational, infrastructural and job growth potentials. We aspire to make a difference in the lives of our clients by helping them achieve their investment goals through strong market research backed by third party experts and due diligence.
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