Canterbury
rents rise by 22.6% since 2005
The Canterbury
Property Market is a very interesting animal and has been particularly fascinating
over the last 12 years when we consider what has happened to Canterbury rents
and house prices.
There’s
currently much talk of what will happen to the rental property market following
Brexit. To judge that, I believe we must look what happened in the 2008/9
credit crunch (and what has happened since) to judge rationale and
methodically, the possible ramifications for long-term investors in the Canterbury
property market. You see, an important, yet overlooked measure is the
performance of rental income vs house prices (i.e. the resultant yields
over time). In Canterbury (as for the rest of Great Britain), notwithstanding a
slight drop in 2008 and 2009, property rentals have been gradually increasing.
The
income from rentals has been progressively increasing over the last 12 years. Today,
they are 22.6% higher than they were at the beginning of 2005. In fact, over
the last five years, the average growth has been 2.4% per annum. From a
landlord’s point of view, increase in average rental income is not to
be sneered at. However, the observant readers will be noting that we are
ignoring an important factor – our friend inflation.
Turn the
clock back to 2005, and we have a property being rented for say £900 a month
and that is still being rented at £900 a month today, in Spring of 2017. While the
landlord is not getting any less income, this £900 is no longer worth as much. Let
me explain, in 2005, £900 may have bought a two-week 4* holiday in Italy. Yet, holidays
have increased in line with inflation (which has been 38.5% since 2005), so our
holiday would cost today £1,246 (£900 + 38.5% inflation = £1,246). Therefore, the
landlord could no longer afford the same holiday, even though having the same
amount in pound notes from their rental property.
This
means when we compare rents in Canterbury to inflation since 2005, Canterbury
landlords are worse off today, when they receive their monthly rental income,
than they were in 2005 by 15.9% in real terms (rents increased by 22.6% since
2005, less the 38.5% inflation since 2005 – net affect 15.9% drop)
However,
rental income is not the only way to generate money from property as property
values can increase. Although in the short term, cash flows are diminishing,
many Canterbury landlords may be content to accept that for a colossal increase
in capital value.
Property
values in Canterbury have risen by 65.3% since 2005
This
equates to a reasonably salubrious 5.44% per annum increase over the last 12
years. Even more interesting that this includes the 2008/9 property crash, this
will make those Canterbury landlords and investors feel a little better about
the information regarding rents after inflation.
Moving
forward, the prospects of making easy money on buy to let in Canterbury have
diminished, when compared to 2005. Last decade, making money from buy to let
was as easy as falling off a log – but not anymore.
It would
be true to say, my rental income versus property prices study does lead to noteworthy
thoughts. I am often asked to look at my landlord’s rental portfolios, to
ascertain the spread of their investment across their multiple properties. It’s
all about judging whether what you have will meet your needs of the investment
in the future. It’s the balance of capital growth and yield whilst diversifying
this risk.
If you
are investing in the Canterbury property market, do your homework and do it
well. While some yields may look attractive, there are properties in many areas
that do not have the solid rudiments in place to sustain them. If you are
looking for capital growth, you might be surprised where the hidden gems really
are. Take advice, even ask your agent for a portfolio analysis like I offer my
landlords. The clear majority of agents in Canterbury will be able to give a
detailed analysis of past and anticipated investment opportunity (especially
the awful effect of inflation) on your portfolio. However, if they can’t help –
well, you know where I am, the kettle is on!