Balham Q1 2014
Introduction Anyone who owns a property in London is a
As well as publicly available sources, we have
property investor. Our lives and plans often
used the proprietary data that we have been
depend on the performance of what is likely to
capturing since 1996 to help us make decisions
be the largest asset we own. So perhaps it will
and provide advice and guidance to our clients.
be helpful to take more of an investor’s view
D&GAM has helped us focus on the data that
of the market.
counts and we think the results make fascinating
To produce this report we worked closely with
reading.
D&G Asset Management, a company we co-
If you would like to learn more about the
founded in 2005. They deploy money into London residential property all the time, so they are constantly analysing different areas and the assets
Balham area please contact our office on Nightingale Lane.
within those areas, seeking to maximise returns.
Property Values
2013 was an exceptional year for Balham property. But is it a bubble or a permanent re-rating? Balham Real Capital Returns over the last 6 years (2007-2013) are flattered by 2013 performance
Dec 07 – Dec 13 Dec 12 – Dec 13
1 One bed flats have
produced a real return of 32% since the last peak of the market in 2007... 2 ...and most of that
return came from their performance in 2013 (20%).
% 40 30 20
modest real returns over the 2007 – 2013 period.
2
3
10 0
3 Houses have shown
1
1 Bed Flats
2 Bed Flats
3 Bed Houses
4 Bed Houses
Source: D&G Proprietary data, ONS
An exceptional year This chart compares the real (that is stripping out the effects of inflation) capital returns for the single year of 2013 with returns over the six year period 2007-2013. It shows that during the six years, capital returns have been good, but not absurd; the annualised real return was +3%, this is lower than the ten year long term average for the area of +5%. The reason for the decent six year return is that last year was a spectacular one. In effect, 2013 made up the ground lost during 2007-2012. It is important for 2013 to be seen in this light. It was a year when confidence returned to the market and families started to switch from holding cash in the bank to property for themselves or their children – ‘The Bank of Mum and Dad’. Since 2007, unlike other adjoining areas, flats in Balham have outperformed houses. During 2013, as the chart shows, one bedroom flats in particular had a very strong year. This is partly a reflection of the affordability of flats in the area and its
popularity as buy-to-let territory on the ‘Northern Line Spine’. Also during 2013, capital value growth of houses started to match that of flats. We think that 2013 saw the UK credit cycle starting to turn. If this is correct, mortgages will become easier to obtain and we would expect houses and flats in Balham to rise broadly in line with each other. The big question There is much talk in the press of a London property ‘bubble’. Successful property investors need to spot the difference between an asset price bubble and a genuine re-rating of prices. Our view is that the 2013 movement in prices has not formed a ‘bubble’. First, the six year real annualised growth rate (+3%) is below the long term 10 year trend (+5%). Second, there is no evidence that people buying in 2013 were borrowing heavily to acquire their property. Property owners with low loan to value ratios are less likely to be forced into a distressed sale; they will therefore keep a floor under prices.
How an investor looks at the market Residential property investors use two key
area, the economy (in particular, interest and tax
measures: the capital value of the property and
rates) and the wider geopolitical picture.
its net rental yield.
The interplay of these factors is what determines
You can make money from an increase in capital
investment returns and what makes property
value and earn additional income by renting out
investment decisions so interesting. We hope
a property you own. The net yield is the annual
this report provides some help as you assess
rent, less expenses, divided by the property’s
your options.
capital value. Both are important and are influenced by many factors including: supply of new properties, infrastructure projects, demographics of the
2013 was a subdued year for Balham rental income.
Rental Growth & Yield
Balham Nominal Rental Income Growth mixed following steady long-term increases Dec 08 – Dec 13
% 30
Dec 12 – Dec 13 1
20
1 Rents for 2 bedroom flats
rose above inflation (+19%) over 5 years, 2008 – 2013.
10
2 There was no rental growth
0 -10
in 2013.
2
1 Bed Flats
2 Bed Flats
3 Bed Houses
4 Bed Houses
Source: D&G Proprietary data from our Battersea office
A mixed year Current Yields
Dec 13
When renting out a property, an investor will
Generally, 2011 and 2012 saw strong rental growth
look at current rental yield. However, they also
– the result of tight credit markets delaying many
1 Bed Flats
3.9-4.5%
need to take a view on whether rental income
first time buyers entering the market.
2 Bed Flats
3.2-4.0%
will grow; after all, it is rental growth that
However 2013 was a difficult year with rents for
3 Bed Houses
2.4-3.6%
both flats and houses effectively flat. This was
4 Bed Houses
2.4-3.6%
due to the squeeze on real incomes of tenants
10 Yr UK Gilt Yield
2.80%
rental income growth in Balham has been
and an increase in supply as buy-to-let investors
FTSE All Sh Yield
3.30%
broadly above inflation (+19%). One bedroom
targeted the area.
UK Base Rate
0.50%
flats and three bedroom houses have under-
Landlords may have to be patient and wait for a
maintains real income and yield over time. The chart shows that over the past five years,
performed other unit sizes with slightly below inflation five year rental growth. By contrast, two bedroom flats and the larger houses have produced above inflation rent rises over the
rise in real incomes before further rent rises stick. Our view is that the area remains popular with younger tenants and as wages rise, so will rents.
long term. Last year, however, the bigger houses suffered a fall in rent due largely to a very tough summer market.
For more information about D&GAM please go to www.dngam.com. This report is for general information purposes only. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Douglas & Gordon. Whilst every effort has been made to ensure its accuracy. Douglas & Gordon accepts no liability whatsoever for any direct or consequential loss arising from its use.
Market Context It has become a truism that London is ‘different’ from the rest of the UK property market. This chart shows just how true this is.
Balham vs UK housing market Real Capital Returns Dec 03 – Dec 13 % 60
House price indices show that the value of an average UK house has risen by 30% (Nationwide) or 22% (Halifax) over the last ten years. But inflation over the same period has been 38%. That means the value has actually fallen in real terms.
50 40 30
In Balham, the inflation adjusted value of an
20
average property has risen by 60% over the
10
same ten year period.
0
In future reports, we will look at how different
-10
areas of London have performed relative to each other.
Balham
Nationwide
Source: D&G Proprietary data and Nationwide
Balham key facts & figures Here are the key facts and figures anyone
Nominal Capital Returns to Dec 2013
investing in the property market needs at
2013
5 years
10 years
1 Bed Flats
23%
70%
121%
2 Bed Flats
18%
86%
128%
3 Bed Houses
18%
56%
111%
4 Bed Houses
22%
76%
122%
their fingertips.
Other Assets Capital Returns to Dec 2013 2013
5 years
10 years
Nationwide HPI*
8%
15%
30%
Halifax HPI*
6%
8%
14% 3%
FTSE100 RPI
Nominal Rental Income Growth to Dec 2013 2013
5 years
10 years
1 Bed Flats
0%
17%
50%
22%
2 Bed Flats
0%
21%
42%
52%
51%
3 Bed Houses
0%
18%
44%
19%
38%
4 Bed Houses
-3%
24%
53%
*House Price Index
Balham 2014 Our view
• Credit easing • Area re-rating to continue • Capital values: Houses to start to match percentage rises of flats • Rents to slowly pick up
Our Balham Office
81 Nightingale Lane, London SW12 8NX Sales Toby Turnage T 020 8673 0191 E tturnage@dng.co.uk
douglasandgordon.com
Lettings Annabel Hay T 020 7924 2002 E ahay@dng.co.uk