Time to invest: rising rental demand sees opportunities for landlords

 

As demand for rental property continues to soar, those who stick with the sector can expect to see rising yields and fewer void periods.

Despite the doom and gloom headlines of late about the ongoing political uncertainty affecting many sectors across the UK, including housing, the strength of tenant demand continues to grow in many regions. For property investors looking for opportunities, investing in a location where tenant demand is not being met by rental supply could mean stronger yields as well as less likelihood of void periods as the number of interested tenants per property increases competition.

While some investors focus on making returns through buying and selling for a profit, during times of uncertainty and slower house price growth, looking at rental yields and tenant demand can be a better strategy for reaping rewards. According to Rightmove, a shortage in available rental housing has seen record growth in asking rents over recent months, while the Royal Institute for Chartered Surveyors (RICS) predicts this will continue. Investing in property for the long term is normally the best way of seeing the best returns, as the property market works in cycles, and those landlords who stick with the sector should not only benefit from the current excess of tenant demand but also capital growth in the future.

Rent expectations remain positive

The latest residential market survey from RICS says: “Landlord instructions remain in decline. With demand still outstripping supply, rent expectations for the coming three months remain positive … Contributors are pencilling in rental growth of approximately two per cent over the coming 12 months.

“Significantly at the five-year horizon, the imbalance between demand and supply in the lettings market is expected to lead to an acceleration in rental growth, which is seen averaging to around three per cent per annum through to 2024.”

Government crackdown not working

The Royal Landlords Association (RLA) says that the government’s recent crackdown on the sector, including Section 24 tax changes and the 3% stamp duty surcharge for investors, has seen some landlords selling up, and by making it harder for landlords tenants are the ones who suffer.

David Smith, policy director for the RLA, commented: “Those who argue that a smaller private rented sector is good for tenants wanting to buy a home are plain wrong. The government’s policies are choking off the supply of homes to rent whilst demand remains strong. This is only making life more difficult and potentially more expensive for those looking for somewhere to live.”

He added: “Without an urgent change of course and the introduction of pro-growth policies the situation will only become worse.”

This is in response to a survey that showed that 31% of landlords plan to sell at least one property over the next 12 months, while just 13% say they plan to buy at least one.

For those who remain in the sector, rental yields across the country, but particularly in certain hotspots, are strong. Potential future price growth is still an important factor in any investment, and currently the best capital appreciation is being seen in the north and Midlands, where huge regeneration as well as major company relocations continue to attract more residents away from London.

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Time to invest: rising rental demand sees opportunities for landlords

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