Friday, April 20, 2023
UK residential investment returns bounce back
The UK residential investment market saw a leaped return to mid-teen performance in 2006, with assets let on modern leases generating an overall return to investors of 16.8% for the year, marking the end of three years of decelerating returns.
Total returns for the year were in line with those on equities and only just below those on commercial property. Bond returns were marginally negative thanks to rising yields (-0.1%). Over six years, both residential and commercial property delivered returns just shy of 14% - well ahead of equities and bonds.
A return to double-digit performance was also witnessed at the regional level, with the majority of regions achieving returns in excess of 11.0%. In a continuing trend, the range of regional returns in 2006 was almost entirely driven by relative capital appreciation rates as income returns converged yet further. The difference in income return between the regions with the highest, Scotland (3.7%), and lowest, Central London (3.1%), levels fell to just 68 basis points in 2006. In line with previous years, almost 36% of gross income was lost due to voids (8%), maintenance costs, management costs, insurance, utilities and other irrecoverable costs.
Co-founding Director of IPD, Ian Cullen said, "These impressive 2006 returns reflect the performance of a small group of specialist residential investors. IPD's major project for 2007/8 is to work closely with the BPF to deliver a major increase in our coverage of this market - targeting significant parts of the estimated £511bn of private housing investment reported by Sue Foxley at the IPD Residential Launch this week".
The UK is not short of residential property indices, but these all track headline capital appreciation - whether by directly measuring sale prices (Land Registry), compiling the price movements from mortgage applications (Nationwide & Halifax) or by tracking asking prices (Rightmove.)
By contrast, the IPD Residential Index applies the same holistic measurement techniques used in its commercial property indices. Capital growth therefore takes account of capital expenditure and the income return to the investor is captured in order to calculate a total return.
Total returns for the year were in line with those on equities and only just below those on commercial property. Bond returns were marginally negative thanks to rising yields (-0.1%). Over six years, both residential and commercial property delivered returns just shy of 14% - well ahead of equities and bonds.
A return to double-digit performance was also witnessed at the regional level, with the majority of regions achieving returns in excess of 11.0%. In a continuing trend, the range of regional returns in 2006 was almost entirely driven by relative capital appreciation rates as income returns converged yet further. The difference in income return between the regions with the highest, Scotland (3.7%), and lowest, Central London (3.1%), levels fell to just 68 basis points in 2006. In line with previous years, almost 36% of gross income was lost due to voids (8%), maintenance costs, management costs, insurance, utilities and other irrecoverable costs.
Co-founding Director of IPD, Ian Cullen said, "These impressive 2006 returns reflect the performance of a small group of specialist residential investors. IPD's major project for 2007/8 is to work closely with the BPF to deliver a major increase in our coverage of this market - targeting significant parts of the estimated £511bn of private housing investment reported by Sue Foxley at the IPD Residential Launch this week".
The UK is not short of residential property indices, but these all track headline capital appreciation - whether by directly measuring sale prices (Land Registry), compiling the price movements from mortgage applications (Nationwide & Halifax) or by tracking asking prices (Rightmove.)
By contrast, the IPD Residential Index applies the same holistic measurement techniques used in its commercial property indices. Capital growth therefore takes account of capital expenditure and the income return to the investor is captured in order to calculate a total return.
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