Investors ignore falling rents and decline in demand

Buy-to-let investors are continuing to expand their property portfolios in London, despite the fact that demand and rents are falling, research shows.

Cluttons report that buy-to-let purchases in Central London are increasing despite falling rental demand and declining rents. Average rental values slipped by 2.3% during Q4, taking average weekly rents to £996, the first time they have dipped below £1,000 since Q1 2011.

Areas in central north west London with formerly outstanding rental growth figures, such as Belsize Park and St John’s Wood, are now recording the steepest falls of 6% and 5.4% respectively and the dip in weekly rents has resulted in average values being 2.3% down compared with this time last year.

Despite the rental adjustments, Cluttons noted an upturn in investor activity in its Q4 Residential Investment Monitor. Buy-to-let investors are particularly keen to diversify their investment capital in the face of economic uncertainty and are contributing to positive sales activity in Central London. Cluttons’ figures suggest buy-to-let investors made up almost 15% of sales during 2012.

Cluttons’ research suggests the rise of buy-to-let investments may be partly attributed to lenders who have been increasingly supportive of this type of purchase over the last 12 months. Total lending to the sector was up by 19%, compared with the same period last year.

Sue Foxley, head of research at Cluttons, said: “Despite the expectation of further rental falls during the first quarter of 2013, investors remain unfazed and are taking a long-term view to purchases. Over a quarter of households in London live in private rented accommodation and the research undertaken for Cluttons by Professor Ball, of the University of Reading, found that this number will grow as home ownership moves out of reach for a growing proportion of Londoners. This will drive strong rental growth over the next decade so it is understandable that investors are looking beyond the current market weakness to build portfolios.

“Popular areas for buy-to-let investment include east London and south London submarkets such as Nine Elms and we expect to see even more activity here. Asia Pacific investors also remain active, with a specific focus on new build properties between £0.5m to £1.5m; however domestic investors are also actively building buy-to-let portfolios.”

Article courtesy of Property Investor Today
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