Investors seeking to minimise their risk exposure have faced a myriad of changes in 2020. The destructive nature of COVID-19 has given way to unprecedented market uncertainty, particularly when it comes to the performance of certain assets like stocks and shares.
However, amidst these choppy market conditions, UK residential real estate has managed to actively increase in value in general terms. After a brief period of inactivity due to contagion fears under lockdown, the British housing market was given new life through the introduction of a stamp duty land tax (SDLT) holiday in July. As a result of the first £500,000 of all property prices becoming exempt from the tax through the holiday, a surge in demand for bricks and mortar followed.
This, in turn, massively increased the level of transactional activity and the rate of house price growth across the country. The Royal Institute of Charted Surveyors recently reported that UK house price growth was at an impressive 18-year high. This is only further incentivising prospective buyers to consider property investment amidst the COVID-19 pandemic.
And among these buyers, buy-to-let (BTL) investments have become increasingly popular. As an asset able to offer both long-term capital growth and regular returns through rental payments, many see BTL as a way to hedge against COVID-19 uncertainty. After all, there is significant market demand for rental property in the UK and this is likely to only increase over the coming 12 months. As such, there must be adequate supply to meet burgeoning demand.
Location, location, location
For property investors considering a BTL investment, it’s important to determine the locations with the best chances of seeing consistent property price growth over the next decade. When taking these points into account, the subtler, long-term effects of COVID-19 become clear; most notably through the mass adoption of working-from-home caused by the pandemic.
Recent data from Rightmove demonstrates that, wherever the UK’s next property hotspots are, they will not be confined to central London. Buyer enquiries in cities like Cambridge and Oxford have risen by 76% and 64% respectively, while London neighbourhoods like Earl’s Court have seen enquiries drop by 40%.
The underlying forces behind this are clear. As companies begin to realise that they will seldom ever need all their staff physically present at once, they begin to seek smaller, more agile, cheaper commercial real estate. This will no doubt involve downsizing existing office spaces or relocating to cheaper locations. For those working in London, there suddenly becomes less of a need to be based in the capital, and this has resulted in more people looking to larger, more affordable properties as the everyday commute becomes a thing of the past.
So, with all this in mind, I have identified two locations that should be on the radar of BTL investors.
On the face of it, Leeds seems like the perfect location for prospective buyers to research when considering new additions to their property portfolio. Recently deemed the most profitable city to be a landlord in the North of England by CIA Landlord, its mixture of high rental yields and low property prices mean considerable capital growth of Leeds-based property assets is seen as a feasible likelihood by many.
Additionally, the city is well-positioned to take advantage of the aforementioned London exodus. Leeds has the accolade of being a ‘brain gain city’ which means, alongside Manchester and London, more students remain in the city after graduation than those who leave. Consequently, Leeds enjoys the largest financial services sector in the nation outside of London; meaning many financial service companies seeking cheaper rents will likely make the move to this Yorkshire city – bringing investment and their employees along with them.
Throw in the fact that Leeds has been designated as a leading business hub in the Government’s ‘Northern Powerhouse’ strategy, and it seems increasingly likely that the city will enjoy high property price growth for the foreseeable future. However, there are locations outside of England that are worth considering, one of which is Cardiff.
The capital city of Wales is particularly primed for impressive property price growth over the next decade. With a metropolitan area population of over 1.1 million citizens, predicted to grow an additional 20% by 2035, rental demand in Cardiff is likely to surge in the coming years.
And there’s no shortage of developments for BTL investors to take their pick from. Cardiff Bay boasts being Europe’s largest waterfront development, and soon-to-be completed £500m+ coastal developments look set to push surrounding prices up even further. Reports are already circulating describing Cardiff as the ideal BTL investment locale; especially given the 240% rise in the city’s house prices over the past two decades.
The safest haven asset
COVID-19 has shown us all just how tumultuous financial markets can be, but also just how resilient real estate is during uncertain times. If BTL investors are able to take advantage of this unique resilience before the expiration of the SDLT deadline, they can enjoy rental dividends and long-term capital growth for many years to come.
The UK’s housing crisis still remains very much unresolved, meaning demand for rental accommodation is likely to only grow nationwide. Those able to identify this need and provide the rental property needed are set to see their investments grow throughout the coming decade.
Jamie Johnson is the CEO of FJP Investment, an introducer of UK and overseas property-based investments to a global audience of high net-worth and sophisticated investors, institutions as well as family offices. Founded in 2013, the business also partners with developers in order to provide them with a readily accessible source of funding for their development.
Jamie Johnson is the CEO of FJP Investment