Hammersmith & Shepherd’s Bush 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 Hammersmith & Shepherd’s Bush area please contact our office on Glenthorne Road.
2013 was a very strong year for Hammersmith & Shepherd’s Bush property. But is it a bubble or a permanent re-rating? Hammersmith & Shepherd’s Bush Nominal Capital Returns over the last 4 3/4 years (Apr 09-Dec 13) have been very strong
Apr 09 – Dec 13
% Dec 11 – Dec 13
150
Dec 12 – Dec 13
120 90
1 One bed flats have
produced a return of 80% since April 2009...
3
1
60 30
2 ...and much of that
return came from their performance in 2013. 3 Large houses have shown
very strong returns over the April 2009 – December 2013 period.
0
2
1 Bed Flats
2 Bed Flats
3 Bed Houses
4 Bed Houses
Source: D&G Proprietary data, ONS
A good year
Where do we stand now?
The chart above compares capital value movements for different types of property since April 2009, when the London market bottomed out. This followed a difficult 18 month period starting in Q4 2007.
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 April 2009, the capital value growth of large houses in Hammersmith & Shepherd’s Bush has outperformed flats. This is true of many of the neighbouring areas in SW London and is the result of people drawing down on cash deposits and re-allocating them into property for themselves or their children – ‘The Bank of Mum & Dad’. Most of these purchases have been made by cash buyers or those with low mortgage requirements In 2013 however, flats, which are more sensitive to the credit cycle, outperformed houses. 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 this trend to continue. Indeed, many of our rental tenants tell us that they are saving for deposits.
Our view is that the 2013 movement in prices has not formed a ‘bubble’. First, the six year real annualised growth rate (+3%) in SW London (‘D&G Land’) is below the long-term ten year trend for the area (+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 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
Rental Growth & Yield
2013 was a weak year for Hammersmith & Shepherd’s Bush rental income. Hammersmith & Shepherd’s Bush Nominal Rental Income declines following good increases over the last 4 years
Dec 09 – Dec 13
% 40
Dec 12 – Dec 13
30
1 Rental growth over the
20
last four years has been above inflation (+16%) for one bedroom flats.
1
10 2 Last year rents fell.
0 -10
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. The chart shows that over the past four years, rental growth in Hammersmith & Shepherd’s Bush has been strong and, importantly, above inflation (+16%); the only exception being larger houses.
2013, however, was a difficult year with rents for all unit sizes, with the exception of two bedroom flats, declining.
Current Yields
The stall in rental income growth last year was due to a combination of increased supply in rental stock and previous rent rises squeezing the net income of tenants. Landlords may have to be patient and wait for a rise in real incomes before further rent rises stick.
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
3.3-4.3%
2 Bed Flats
3.2-4.2%
3 Bed Houses
2.9-3.9%
4 Bed Houses
2.5-3.5%
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 true value of an average UK house has risen by 16% (Nationwide) or 9% (Halifax) over the last four and three quarter years. But inflation over the same period has been 20%. That means the value has actually fallen in real terms. In Hammersmith & Shepherd’s Bush, the inflation adjusted value of an average property has risen by 70% over the same four and three quarter year period. In future reports, we will look at how different areas of London performed relative to each other.
Hammersmith & Shepherd’s Bush key facts & figures
Halifax HPI* FTSE100 RPI
60 50 40 30 20 10 0 -10
Hammersmith & Shepherd’s Bush
Nationwide
Nominal Capital Returns to Dec 2013
Other Assets Capital Returns to Dec 2013 2013
% 70
Source: D&G Proprietary data and Nationwide
Here are the key facts and figures anyone investing in the property market needs at their fingertips.
Nationwide HPI*
Hammersmith & Shepherd’s Bush vs UK housing market Real Capital Returns Apr 09 – Dec 13
2 years
4 years
8%
7%
8%
6%
8%
2%
14%
21%
25%
3%
6%
16%
2013
2 years
4 years
1 Bed Flats
25%
41%
71%
2 Bed Flats
28%
50%
88%
3 Bed Houses
14%
32%
56%
4 Bed Houses
15%
27%
111%
Nominal Rental Income Growth to Dec 2013 2013
2 years
1 Bed Flats
-6%
-3%
19%
2 Bed Flats
2%
9%
34%
3 Bed Houses
-5%
-5%
18%
4 Bed Houses
-2%
-3%
9%
*House Price Index
Hammersmith & Shepherd’s Bush 2014 Our view
•C redit easing •C apital values: Flats to outperform houses •R ents to remain subdued
Our Hammersmith & Shepherd’s Bush Office 118-120 Glenthorne Road, London W6 0LP Sales Henriette Redgrave T 020 8563 7100 E hredgrave@dng.co.uk
douglasandgordon.com
Lettings Emma Eliot T 020 8563 4422 E eeliot@dng.co.uk
4 years