UK private property rental sector confident going into 2011

The private property rental sector in the UK has ended the year on an optimistic note and is likely to be buoyant in 2011, especially in London, according to a new report.

The Young Index sentiment survey for the fourth quarter of 2010 indicates that while access to finance is still a barrier, price and rental expectations for property in London over the coming 12 months are both positive.

Property in London is expected to continue to outperform the UK as a whole over the next twelve months. Some 89% of respondents to the latest Young Index sentiment survey believe that London residential property prices will be at current levels or higher by this time next year, a rise of 16% on the third quarter survey and the highest sentiment seen since the credit crunch kicked in.

Overall, the investors who were questioned predict that prices for London property will see an average increase of 4.5%.

Expectations though for residential property prices outside the capital are not as rosy. Only 44% expect prices to be at current levels or higher by the end of 2011, representing a slight fall in sentiment from the 46% who expected prices to hold up when questioned in the third quarter of this year. Overall, respondents predict that property prices outside the capital will fall by 0.6% over the course of the next 12 months.

‘The market consensus is that prices have been stabilising in recent months and in some locations, falling back. It is likely that 2011 will present a similar picture, as access to finance remains an issue and the demand from purchasers remains subdued, but it is clear from the latest Young Index results that sentiment among residential property investors is becoming increasingly positive, at least for those with assets in London,’ said chief executive officer Neil Young.

‘However, generalisations are fraught with danger and some local markets will outperform the average by quite some distance. I would expect prices in well connected areas of London such as SE1, N1 and the City postcodes of EC1-4 to hold up well relative to the wider picture, and I would not be surprised for prices of the best quality stock close to the transport hubs to experience a small year-on-year increase, as reflected in this quarter’s index,’ he added.

In terms of the investment outlook, some 32% of investors are considering purchasing additional investment property in London during the coming 12 months, continuing the downward trend of the past 12 months, but at a slackening pace. In comparison, only 11% of respondents are considering making a UK investment property purchase outside of the capital, once again widening the gap in investor sentiment between London and the rest of the UK.

Investors increasingly see residential property as a long-term asset class. Only 2% of investors expect to exit residential property investments within the next 12 months. Some 65% intend to hold their assets for at least 10 years, up from 54% in the previous quarter, and, on average, investors now intend to retain their residential property investments for 14.5 years, an increase of almost two years from the previous quarter’s poll.

The report also shows that investors in the PRS remain confident that the buoyancy in the rental market will continue. Some 86% of respondents expect rents in London to rise over the coming 12 months and 77% expect the same to be reflected in UK location outside of the capital.

With the mortgage market remaining a closed shop to many would be first time buyers, the pressure on the Private Rented Sector is only likely to increase. This, coupled with the underlying demographics of increasing housing demand, at a time when the supply of new homes remains at an all time low, means that the current upward pressure on rents is likely to continue well into 2011, the report concludes.