Yields in the UK

[L Bernham]

I was surprised to read that rental yields in the UK are at 8%. London is understandably the lowest at 6.95%(due to the increased likelihood for capital growth and lower vacancy rates).
Does anyone know why?

http://www.themovechannel.com/sitefeatures/market-eye/2003-april-paragon-a.pdf

They are going through a boom too as yields have fallen from 10% a few years ago to where they are at now.
One would have expected them to be lower than Australia because capital growth would be more likely as it has higher immigration, less space, lower interest rates

Experts are saying that the UK is one of the 5 or 6 countries in the world that has an unsustainable property bubble (Spain, Australia, US, Ireland, and the Netherlands.

ie taken from the Economist
" The house-price-to-income ratio. The ratio of average house prices to average incomes, which tracks the long-term affordability of homes, is currently flashing red in America, Britain, Australia, Ireland, the Netherlands and Spain. In all these countries the ratio is close to or above previous peaks—ie, levels that preceded previous crashes (see chart 9)."

http://www.economist.com/displayStory.cfm?story_id=1794899

Renters should be laughing. I might sell my PPOR and rent for a while.
But does anyone know the reason for the huge discrepancy for yields in Oz v the UK

cheers
L bernham

 

[geoffw]

I don't know where they got their yields from.

On my statistically significant sample of one, bought in 1988 in Southampton, and rented out fully furnished from 1990, it was NEVER positive up until the time we sold it in 1999.

The cap growth was insignificant too- bout GBP 50K, sold 57K. Less expenses of a trip to the UK to sell, and many years of losses.

If that was my only experience of property investment, I would have been completely supportive LB of your extremely negative view of property- based, it seems, on one single example.

 

[L Bernham]

My negative view is mainly on the average property for sale in Australia.
I have no problems with RE as an investment. There will be people who continue to make money in RE for the next 50 years.

Re London; The 4 br terraced house I rented in Wembley in 2001 for GBP1200 pcm had a sale price of around GBP140K. Yield of around 10.3%.

 

[Jean]

IMHO, rental yield is always relevant. Not the only criterion but important nonetheless. I use it as my reality check. Yield and cash flows are factors to be considered in risk management.

If it can't earn its way between cycles then I'm not interested.
Different folks, different strokes.

Easy to key different scenarios into the spreadsheet and focus on what is important to you.

 

[uktoadelaide]

Hi L Bernham

I have been reading this board for a few months and have never posted before. I have been reading your posts and I think you are a very intelligent man, I enjoy reading your posts.

In answer to your question. Rents have alway been high in the UK for several reasons that are totally different to Australia.

Examples

1. Even if people can afford a loan the bank does not always lend (no secure jobs etc).

2. A good area can turn bad overnight and vise a versa (i have seens this many times) making people more cautious about buying.

3. housing benefits pay more of the rent (if not all) in private accomadation.

 

[Jean]

uktoadelaide

Hi,
I guess jobs have become less secure here too

Good to get practical insights on news stories.

I'm intrigued, what causes (2)?

 

[L Bernham]

thanks for the info (and the compliment).

I find the UK property and RE market quite fascinating.

What were some of the places you saw turn bad quickly?

I know it can happen fairly quickly. One of the places I lived in Chiswick had some ugly tall apartment blocks which I was told 20 years earlier were "the place to live and the way of the future". Now they are predominantly used for people on housing benefits and you wouldnt wander around them at night.

In fact I remember a similar scenario in Singapore (Toa Payoh? any singaporeans can confirm?). Nice and flash at the time, but eventually becomes housing for low income earners even though close to the city.

I'm not sure about here though. Do apartments usually hold their value well in Australia over that long a time frame?
I wonder about some of these with pools, gyms etc and how some of these will look in 20-30 years. If they arent maintained well it can cause problems.

cheers
L Bernham

 

[uktoadelaide]

Hi Jean

Im talking about cities (except London) where there is a lot more social problems than Oz. The rich and poor divide in the Uk is incredible. Its also interesting to know that when an area turns sour and house prices plummet, you might say ok that then creates a buying op but small investors dont get a look in, the big boys with help from the council buy the lot (have seen this many many times).

 

[paul_s]

3. housing benefits pay more of the rent (if not all) in private accomadation. [/B]

hi uktoadelaide,

just wondering what is exactly the situation is with this, do you mean the majority of renters in the uk receive rent assistance from the govt?

 

[uktoadelaide]

Hi L Bernham

It is a totally different ball game to Oz. In Oz people class a good area as a whole suburb. In the UK it is also based on suburbs but in most cases its based on streets. It is quite typical to buy in a certain suburb and feel comfortable and safe but just a few streets away you would not buy for any money. 99.9% of the population drive 500m to buy a paper from the shops (true), this car culture (alot worse than Australia) means they never need to view the bad streets so inturn this makes this scenario plausible. This is not my view point this is a fact about the uk.

 

[uktoadelaide]

Hi Paul

Sorry (3) was a bit misleading. I meant people on housing benefit. The amount they receive is higher% than oz. So many inner city IP's are CF+ from people on the dole. I would go as far to say that in my knowledge I have known an IP in the UK not CF+.

 

[L Bernham]

Uktoadelaide.

where in the UK were you? Bradford?

There are some rotten areas I know.
I also know plenty of good/safe places out of London that I wouldnt have a problem living in. Bath, Penzance county, and coastal towns like Weymouth and Bournemouth spring to mind and all seem to have low crime rates.

London as a whole is pretty good. Just need to avoid the north,the east, some of the south and parts of the west. Lol.

With so many bad tenants I could imagine that this would have an effect on rental risk.
cheers.

 

[Jamie]

Originally posted by L Bernham
I was surprised to read that rental yields in the UK are at 8%. L bernham

OK...

Why quote a yield for an entire country? What then is the rental yield for Australia?

I have seen residential yields in Australia (in the last 2 weeks) ranging from around 2% to around 14%... Which figure should I quote to encompass the "Australian Property Market" you have alluded to before...

How can you average a yield when each is symbolic of a different property market?

In anticipation,

Jamie

 

[Jamie]

Originally posted by uktoadelaide
Hi L Bernham

It is a totally different ball game to Oz. In Oz people class a good area as a whole suburb. In the UK it is also based on suburbs but in most cases its based on streets.

HI uktoadelaide,

Not sure of your involvement with our fair land, but would have to disagree with you in the extreme...

Every major city, and every smaller regional centre I know of, has streets which are generally regarded as better than others... a number of suburbs are even discussed here on the forum with merits based on the particular streets posters refer to..

try this thread as an example: http://www.somersoft.com/forums/showthread.php?s=&threadid=10953

99.9% of the population drive 500m to buy a paper from the shops (true), this car culture (alot worse than Australia) means they never need to view the bad streets so inturn this makes this scenario plausible. This is not my view point this is a fact about the uk.

Please tell me you made this up
If not, Id be grateful if you could point me in the direction of the stats youve quoted...

 

[Andrew]

We seem to have some people knowlegable about UK
issues here so I have a question.

I've heard that property in London is actually leased from
the Queen, not owned (is this similar to Canberra?). How
does this work and how does it affect prices.

Does the lease get automatically renewed when you
"purchase" a property? Can it be taken away from you
when the lease is up?

Why didn't Australians give those pompous fools the flick
when we had the chance? Oops, getting off track now....

andy

 

[ella]

Originally posted by Andrew
We seem to have some people knowlegable about UK
issues here so I have a question.

I've heard that property in London is actually leased from
the Queen, not owned (is this similar to Canberra?). How
does this work and how does it affect prices.

andy

Well - I lived in London for a few years, returning to Oz in 1988. So this is my response, based on knowledge from that date! The Queen may or may not lease out property, I wouldn't know about that. But she's certainly not the biggest landlord in London. That's the Earl of Grosvenor I think.

When you talk about leasing in the UK, this relates to flats (units in Oz). Usually these are old houses on 3 or 4 floors, and each floor is 'sold' as a flat. But the system there is that you don't buy it, you buy a 99 (or 120) year lease on it. There is an overall landlord who owns the building structure, and who is responsible for building maintenance. He is the 'body corporate' if you like. And there is a yearly fee you have to pay to cover insurance, building maintenance etc.

I don't know when this all started (breaking houses up into flats), and I don't know what effect this woudl have on the value of the property. Probably not much till you got down to about 20 years left on the lease.

We bought a flat like this. And had huge problems with the landlord - he couldn't get a sitting tenant out of the flat above us and he ended up setting the building on fire! True!! Then he took the insurance, never did the repairs and sold it on!! Shortly after that we sold to come back to Australia (at the very top of the market too I might add, with the London property market crashing through the floor a few weeks later!! Phew!!!)

- ella

 

[abcdiamond]

99.9% of the population drive 500m to buy a paper from the shops (true), this car culture (alot worse than Australia) means they never need to view the bad streets so inturn this makes this scenario plausible. This is not my view point this is a fact about the uk.

Being a born and bred English man, and obviously one of the .1% (without ever realising it) of those that actually used to walk to the shops, before moving here to Australia, (where I now have to drive to the shops ) I am very suprised, because there is no way that I or most people that I new, would consider driving such a short distance to buy a paper. Many reasons for this, and not least being finding a parking space !!

But then again different areas are different, and if the figure of 99.9% is actually a fact, then at least I have found out that i lived in the same little part of the UK that the other .1% lived in.

I am not sure of the current population of the UK, but .1% of 52million , is 52,000, and the area I lived in had a population of 250,000, and we all had a newsagent within walking distance, but every street was clogged with parked cars, and we only used the cars when we needed to, for fear of not being able to park within 500metres of our own houses.
thats my ten bob's worth. (OK, 50p for those young un's)