West 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 West Putney area please contact our office on Lower Richmond Road.
2013 was a very strong year across the board for West Putney property. West Putney Nominal price rises in 2013 made a significant impact on Apr 09-Dec 13 capital returns
Apr 09 – Dec 13
% Dec 12 – Dec 13
80 3
70 1 One bed flats have
produced a return of 50% since the bottom of the market in April 2009... 2 ...and a lot of that
return came from their performance in 2013.
60 50 40 30
the best returns over the April 2009 – December 2013 period.
2
20 10 0
3 Large houses have shown
1
1 Bed Flats
2 Bed Flats
3 Bed Houses
4 Bed Houses
Source: D&G Proprietary data, ONS
A very strong year The chart compares capital value movements for different types of property since the London market bottomed out in April 2009. This followed a difficult 18 month period, starting in Q4 2007. Large houses make up a significant percentage of the West Putney property stock. They are traditionally less sensitive to the credit cycle and since 2009, have shown better capital value growth than flats. Another major reason for this is that West Putney, with its very good state schools, has been a magnet for middle class families finding it difficult to afford private school fees out of net income during the ‘credit crunch’. One bedroom flats performed well last year; 2013 accounted for over half their capital growth since April 2009. 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 the capital value of flats to rise in line with houses.
We also think that houses in West Putney remain good value on a £ per square foot basis compared with neighbouring areas. As a result, we remain positive for West Putney house prices over the course of 2014. Where do we stand now? 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%) in SW London (‘D&G Land’) is below the long-term ten 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 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 difficult year for West Putney rental income.
Rental Growth & Yield
Putney Nominal Rental Income Growth weak following mixed long-term increases Dec 08 – Dec 13
% 60 50
Dec 12 – Dec 13
40 30 20 10 0 -10 -20 -30
1 Over the last five years,
rental growth for three bed houses has been in line with inflation (+19%).
1
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 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.
So 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.
Over the past five years, rental income growth for one and two bedroom flats in Putney has been below inflation, whilst for three bedroom houses it has just about been in line with inflation. By contrast the larger houses have produced above inflation rent rises over the long-term, but last year suffered quite large percentage falls.
Landlords may have to be patient and wait for a rise in real incomes before further rent rises stick. 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.
Current Yields 1 Bed Flats
Dec 13 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 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 West Putney, the inflation adjusted value of an average property has risen by 30% 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.
West Putney vs UK housing market Real Capital Returns Apr 09 – Dec 13 % 30 25 20 15 10 5 0 -5
West Putney
Nationwide
Source: D&G Proprietary data and Nationwide
West 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 Nationwide HPI*
Halifax HPI* FTSE100 RPI
2 years
4 years
8%
7%
8%
6%
8%
2%
14%
21%
25%
3%
6%
16%
2013
2 years
4 years
1 Bed Flats
29%
38%
50%
2 Bed Flats
19%
45%
39%
3 Bed Houses
22%
16%
29%
4 Bed Houses
27%
27%
40%
Nominal Rental Income Growth to Dec 2013 2013
2 years
4 years
1 Bed Flats
-5%
-8%
7%
2 Bed Flats
0%
0%
7%
3 Bed Houses
-23%
-25%
0%
4 Bed Houses
-13%
-19%
17%
*House Price Index
West Putney 2014 Our view
• Area to start to catch up adjoining neighbourhoods •C apital values: Flats & houses to produce similar capital returns • Rents to slowly pick up • Credit easing
Our West Putney Office
127 Lower Richmond Road, London SW15 1EZ Sales James French T 020 8785 6666 E jfrench@dng.co.uk
douglasandgordon.com
Lettings Georgie Petras T 020 8788 3333 E gpetras@dng.co.uk