For many years now, build-to-let property has been one of the most exciting and rewarding investment strategies for investors from all corners of the world. The potential for highly lucrative returns and a market with reputably the strongest long-term stability are just two of the key factors that have typically swayed investors to the riches of the build-to-let property market.
That being said, the coronavirus pandemic and the current uncertainty surrounding this has caused investors of all sectors to review whether their investment will suffer a slow and crippling demise. As an operator in the property investment industry, we have decided to ask and answer: Is property still a good investment option? The long and short answer of this is—absolutely yes!
Starting with the latter; keep in mind that the very fundamentals which have long held property investment as the most enticing of prospects remain unchanged even today. As regular Elavace readers will be all too aware, the strength and profitability of UK property investment is yet to be reckoned with!
Now to the long answer. Over the last 12 months, the build-to-rent sector has grown by an impressive 22%. This is according to research by the British Property Federation, which discovered that there are now 167,853 build-to-let properties across the UK. And that’s not all, completions have also impressed in the past 12 months increasing by 37%. This has proved to be especially important in the aftermath of Covid-19, where there has been a huge surge of new tenants on the market for rentals.
Throughout the crisis, the private rented sector has remained relatively buoyant. It’s important to note that although people’s need for homes hasn’t changed, their priorities certainly have. The current biggest driver for the rental market is the financial insecurities amongst renters who have had to withhold plans to buy and instead continue to rent longer than they originally planned. Now more than ever before, people are attracted to the flexibility of renting while others at this moment in time, simply do not have the financial backing to jump onto the property ladder.
Director at Savills residential research, Jacqui Daly gave her thoughts on the recent shift to the rental market. “It will be a while before we fully understand the impact of lockdown on the sector, but it is clear that existing affordability issues, stricter lending criteria and the end of the furlough scheme will force aspiring first-time buyers to delay buying until the wider economy recovers and underpin demand for secure, well-managed private rented accommodation.”
The latest Rightmove Rental Tracker supported this as annual growth in the UK’s key rental markets, such as the North West and the West Midlands, is doing stunningly well on an annual basis. The shining light of this growth is undoubtedly the North West – home to Northern Powerhouse giant Manchester, which is exceeding expectations with annual growth of 4.9% recorded by Rightmove. The highest level of growth across the whole of England and comfortably shadowing that of London.
How has coronavirus affected the build-to-let sector?
Despite the glowing figures expressed in the last year, the number of starts and completions has steadily declined in recent months as a result of the Covid-19 outbreak. However, with the housing market gradually returning to pre-lockdown highs, construction sectors are getting back on track and the picture is already changing. According to Jacqui Daly, the sector is well-position for a strong recovery.
“Business strategies will undoubtedly be tweaked over coming months, but investors should take encouragement from the fact that US multifamily [build-to-rent] was one of the fastest real estate sectors to recover after the global financial crisis,” she commented. “Investment volumes here fell to just £96m in the second quarter, but July saw a number of major funding deals and the under-offer bank suggests UK build-to-rent is set for a convincing rebound in the second half of 2020.”
As touched upon before, renters have started to rethink their priorities in the wake of life after lockdown. While the prospect of a second lockdown beckons, thousands of businesses are continuing to work from home and for that reason, housing needs are adapting to the new world. New research from the Guild of Property Professionals shows that having somewhere to work at home is now a top priority to 21% of people. Other key priorities include high-speed internet, large communal spaces, and built-in leisure facilities.
This is why build-to-let properties could offer great opportunities for investors. Because unlike traditional buy-to-let, these properties are purpose-build specifically for the rental market. And in light of the recent shift in housing needs, the additional amenities the sector offers will be particularly appealing for renters with changing lifestyles. That’s not to mention the tenants who will also now be looking to upgrade their current living situations after spending a prolonged amount of time staying at home. Build-to-rent provides high-end and well-located accommodation with the sense of community that buy-to-let may not have. In a report from Savills, the firm said that the “coronavirus lockdown is unlikely to dampen investors’ growing appetite”. Instead, with the sector’s continued growth, it could prove to be a more popular option now for property investment.
In addition to this, other research conducted by Savills has also revealed that build-rent is likely to dominate a third of the private rented market. The findings discovered that the sector is set to witness huge growth over the next five to ten years. It estimated that a resounding 1.741-million households out of a total 5.2 million occupying the private rented sector will be tenants living in build-to-rent developments by the time the sector ‘matures’. With the gentle help of Covid-19, the build-to-rent sector could also rise in value from £9.6 billion in 2019 to £543 billion at maturity in today’s money, a third of the PRS’s £1.5 trillion potential value.