East Putney Q1 2014
Introduction Anyone who owns a property in London is a property investor. Our lives and plans often depend on the performance of what is likely to be the largest asset we own. So perhaps it will be helpful to take more of an investor’s view of the market. To produce this report we worked closely with D&G Asset Management, a company we cofounded in 2005. They deploy money into London residential property all the time, so they are constantly analysing different areas and the assets within those areas, seeking to maximise returns.
Property Values
As well as publicly available sources, we have used the proprietary data that we have been capturing since 1996 to help us make decisions and provide advice and guidance to our clients. D&GAM has helped us focus on the data that counts and we think the results make fascinating reading. If you would like to learn more about the East Putney area please contact our office on Upper Richmond Road.
2013 was an exceptional year for East Putney property. But is it a bubble or a permanent re-rating? East Putney Real Capital Returns over the last 6 years (2007-2013) are dominated by 2013 performance
Dec 07 – Dec 13 Dec 12 – Dec 13
1 One bed flats have
produced a real return of 1% since the last peak of the market in 2007... 2 ...and all of that return
came from their performance in 2013. 3 Houses have shown
slightly better real returns over the 2007 – 2013 period.
% 30 20
2
10 0 -10
3
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 modest; the annualised real return was sub +0.5%, well below the ten year long term average for the area of +4%.
neighbouring areas. 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 flats to begin matching the annual capital value rise of houses.
The reason that all unit sizes, except for two bedroom flats, are in positive territory over the six year period is that last year was a spectacular one. In effect, 2013 made up the ground lost during 2007-2012. For one bedroom flats, the capital growth of 2013 pushed the six year returns into positive territory for the first time. 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’.
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.
Since 2007, houses in East Putney have outperformed flats, as is true of many
The big question
Our view is that the 2013 movement in prices has not formed a ‘bubble’. First, the six year real annualised growth rate for the area (+0.5%) is well below the long term trend (+4%). 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 measures: the capital value of the property and its net rental yield. You can make money from an increase in capital value and earn additional income by renting out a property you own. The net yield is the annual rent, less expenses, divided by the property’s capital value.
area, the economy (in particular, interest and tax rates) and the wider geopolitical picture. The interplay of these factors is what determines investment returns and what makes property investment decisions so interesting. We hope this report provides some help as you assess your options.
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 East Putney rental income.
Rental Growth & Yield
East Putney Nominal Rental Income Growth mixed
% 50
Dec 08 – Dec 13
40
Dec 12 – Dec 13
30 20
1 Flats and 3 bedroom
1
houses have had below inflation (+19%) rises between 2008 – 2013.
10 0 -10
2 Rents were static or fell in
2013 across all asset sizes.
-20 -30
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 look at current rental yield. However, they also need to take a view on whether rental income will grow; after all, it is rental growth that maintains real income and yield over time. Over the past five years, real rental income growth for one and two bedroom flats in East Putney has been below inflation, whilst for three bedroom houses it has just about been in line with inflation (+19%). By contrast, the larger houses have produced above inflation rent rises over the long term, but last year suffered quite large percentage falls.
2013 was a difficult year with rents for both flats and houses falling. This was due to the squeeze on real incomes of tenants and an increase in supply as buy-to-let investors targeted the area.
Current Yields
Landlords may have to be patient and wait for a rise in real incomes before further rent rises stick. East Putney remains popular with tenants and as wages rise, so will rents.
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.
Dec 13
1 Bed Flats
3.8-5.0%
2 Bed Flats
3.7-4.8%
3 Bed Houses
2.9-4.3%
4 Bed Houses
2.9-4.3%
10 Yr UK Gilt Yield
2.80%
FTSE All Sh Yield
3.30%
UK Base Rate
0.50%
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. 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. In East Putney, the inflation adjusted value of an average property has risen by 50% over the same ten year period. In future reports, we will look at how different areas of London have performed relative to each other.
East Putney vs UK housing market Real Capital Returns Dec 03 – Dec 13 % 60 50 40 30 20 10 0 -10
East Putney
Nationwide
Source: D&G Proprietary data and Nationwide
East Putney key facts & figures Here are the key facts and figures anyone investing in the property market needs at their fingertips.
Nominal Capital Returns to Dec 2013
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
2013
5 years
10 years
1 Bed Flats
23%
60%
102%
2 Bed Flats
13%
57%
120%
3 Bed Houses
27%
58%
110%
4 Bed Houses
30%
48%
108%
Nominal Rental Income Growth to Dec 2013 2013
5 years
10 years
1 Bed Flats
-5%
11%
36%
22%
2 Bed Flats
0%
14%
27%
52%
51%
3 Bed Houses
-23%
20%
30%
19%
38%
4 Bed Houses
-13%
56%
69%
*House Price Index
East Putney 2014 Our view
• Credit easing • Area to start catching up adjoining areas • Capital values: Annual capital rises of flats to begin •m atching those of houses • Rents to slowly pick up
Our East Putney Office
190 Upper Richmond Road, London SW15 2SH Sales Christopher Pratt T 020 8788 3000 E cpratt@dng.co.uk
douglasandgordon.com
Lettings Georgie Petras T 020 8788 3333 E gpetras@dng.co.uk