Battersea Park 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
Battersea Park area, please contact our office on Battersea Park Road.
within those areas, seeking to maximise returns.
Property Values
2013 was an exceptional year for Battersea Park property. But is it a bubble or a permanent re-rating? Battersea Park Real Capital Returns over the last 6 years (2007-2013) are flattered by 2013 performance
Dec 07 – Dec 13
% 90
Dec 12 – Dec 13
80
3
70 1 One bed flats have
produced a real return of 23% since the last peak of the market in 2007...
60 50 40 30
2 ...and all of that return
came from their performance in 2013.
20
2
10 0
3 Houses have shown very
1
1 Bed Flats
2 Bed Flats
3 Bed Houses
strong real returns over the 2007 – 2013 period.
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 over the six year period, the real capital returns have been good, but not absurd. During that time, the annualised real return was still below the long-term (ten year) average in the area of 7.5%. The reason for these six year returns is that last year was a spectacular one. In effect, 2013 made up the ground lost during 2007-2012. It is
obtain. If this is right, we would expect flats to rise faster in value than houses. 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, because the real annualised growth rate
important for 2013 to be seen in this light. It was
(6.5%) since 2007 is in line with the long-term
a year when confidence returned to the market
trend (7.5%).
and families started to switch from holding cash
Second, there was no evidence that people
in the bank to property for themselves or their
buying in 2013 were borrowing heavily to acquire
children – ‘The Bank of Mum and Dad’.
their property. Property owners with low loan
We also think that 2013 saw the start of the next
to value ratios are less likely to be forced into a
UK credit cycle. This means that, over the next
distressed sale; they will therefore keep a floor
few years, mortgages will become easier to
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 weak year for Battersea Park rental income.
Rental Growth & Yield
Battersea Park 2013 Nominal Rental Income Growth weak following good long term increases
% 90 80 70 60 50 40 30 20 10 0 -10
Dec 08 – Dec 13 Dec 12 – Dec 13
1 Rental growth has been, 1
for all asset sizes, above inflation over the last five years. 2 Last year rents fell.
2
1 Bed Flats
2 Bed Flats
3 Bed Houses
4 Bed Houses Source: D&G Proprietary data
A mixed year When renting out a property, an investor will
2013 however, was a difficult year with rents
look at current rental yield. However, they also
for both flats and houses declining. Houses are
need to take a view on whether rental income
suffering more due to corporate budgets
will grow; after all, it is rental income growth that
being cut.
maintains real income and yield over time.
Rental yields for houses have come down,
The chart shows that over the past five years,
reflecting big moves in their capital value.
rental growth in Battersea Park has been strong
Conversely, flats are achieving higher yield
and, importantly, above inflation (+19%).
because of their less spectacular capital growth.
10 Yr UK Gilt Yield
2.80%
This is particularly true of one bedroom flats.
FTSE All Sh Yield
3.30%
Our view is that rental growth will remain
UK Base Rate
0.50%
In particular, 2011 and 2012 saw strong growth – the result of tight credit markets delaying many first time buyers entering the market.
stagnant until real incomes pick up.
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.
Current Yields
Dec 13
1 Bed Flats
3.9-4.5%
2 Bed Flats
3.2-4.0%
3 Bed Houses
2.4-3.6%
4 Bed Houses
2.4-3.6%
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.
Battersea Park vs UK housing market Real Capital Returns Dec 03 – Dec 13 %
House price indices show that the value
100
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%. This means the value has actually fallen in real terms.
80 60 40
In Battersea Park, the inflation adjusted value of an average property has more than doubled over the same ten year period.
20 0
In future reports, we will look at how different areas of London have performed relative to
-20
each other.
Battersea Park
Nationwide
Source: D&G Proprietary data and Nationwide
Battersea Park 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
27%
82%
133%
2 Bed Flats
24%
94%
167%
3 Bed Houses
36%
200%
275%
4 Bed Houses
25%
150%
188%
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
-4%
31%
60%
22%
2 Bed Flats
-4%
37%
60%
52%
51%
3 Bed Houses
-7%
47%
87%
19%
38%
4 Bed Houses
-8%
85%
71%
*House Price Index
Battersea Park 2014 Our view
• Credit easing • Area re-rating to continue • Capital values: Flats to outperform houses • Rents to stall
Our Battersea Park Office
236 Battersea Park Road, London SW11 4ND Sales Mark Hutton T 020 7720 8077 E mhutton@dng.co.uk
douglasandgordon.com
Lettings Emma Farmar T 020 7498 5243 E efarmar@dng.co.uk