Are you ready to operate successfully in the private rental market of the future? What can you, as a landlord expect to see change in the coming years? And how do you prepare for it?
These questions and more will be answered at the RLA’s Future Renting North conference, to be held in Manchester next month.
With a keynote address by Greater Manchester Mayor Andy Burnham, delegates can expect a packed programme offering up to the minute information and insight from a range of industry experts.
Ahead of the event on April 24, RLA director and Manchester landlord Mark Butterworth, looks at how the lessons of the past can help us prepare for the future, in an article first published in the RLA magazine Residential Property Investor.
The RLA marks its 20th birthday this year – and looking forward to what the next 20 years holds for our rental businesses is impossible without first looking back to learn lessons from the past.
An exercise I did 25 years ago showed that over any 15 year period residential investment beat any other form of investment.
The tax situation was stable and standards were low – not too many white goods required, not all flats had fridges then.
Purchase prices were low and yields were high, but so were interest rates.
Inflation was generally much higher and a reasonable return could be had from savings – this meant that the useful gain was capital appreciation.
This rule has generally been the norm – run the properties out of income and take the long term view for capital appreciation – it depreciates the debt and appreciates the capital value in a way no other investment is able to.
Efficient management keeps voids and costs to a minimum, meaning some income is produced after the initial hurdle of buying the investment and getting it up to standard.
What has radically changed is the investment climate and the tax regime.
Recession used to last two or three years and there would usually be increased demand for tenancies if properties wouldn’t sell – the canny could buy at advantageous prices.
We then moved to the start of buy- to-let and interest free borrowings – encouraging more money to enter the market and allowed prices to rise considerably.
Investment from abroad and offshore investors then followed, taking advantage of the relatively straightforward market, reasonable transaction costs, not too many questions and the significant advantage of no capital gains tax for offshore investors.
With a ready supply of tenants and an increasing population ensuring steady demand, the PRS has trebled in size since the 1988 Housing Act, and is set to continue its growth due to the significant funding from institutionalized funds, corporate investors and offshore investors taking advantage of the weak pound.
This has enabled large blocks of property to be built and whole neighbourhoods created, but mainly in and around London the South East and some city centres.
This means the relative decline of the traditional pepper-potted portfolio.
The competition and demand for facilities has led to hugely improved standards – there is now virtually no difference between rented and owner occupied property and lessened the stigma of renting and reduced the impulse for people to buy.
I acknowledge that the attraction of modern life mean less income is available to go into housing and the general shortage of the right property in the right place has meant rapid price inflation in desirable locations.
Another major factor is the rapid change in the taxation situation, loading costs onto tenants, very unfairly, via their landlords.
The loss of wear and tear, wickedly enforced stamp duty changes and the loss of MIR all make further private investment into our sector difficult to justify.
Many will now be considering their increased tax payments and looking for alternatives.
No-one has a crystal ball, but my guess is that we will see reduced private investment for some time ahead and the growth in the PRS will be driven by larger investment vehicles taking advantage of low interest rates and beneficial exchange rates.
There will be limited private investment where most of us are wary of investing elsewhere, i.e. the stock market, pensions, bonds etc. where so much of the upside is swallowed up in fees.
However outright purchases without too much borrowing still make sense.
This will continue until there is a crisis – whether this be a security or financial one is anybody’s guess.
These events have habit of creeping up on us unaware and from an unforeseen direction.
However the basic rules are always the same:
- Trust your instinct
- Start investing as soon as you are able and take the long view.
- Don’t get over-geared and keep a reserve fund just in case
- Buy things you like and that are convenient – they always pay dividends.
The future is likely to hold more regulation for us (and every other business) but as RLA members and professional landlords we should see this an opportunity- tenants will become more discerning and look for better quality and better managed property.
They will likely pay a premium for this- we certainly find that with our student and young professional stock.
Well located stock will outperform the market and show the best capital return.
With CGT at 28% this is better than the 40% we used to be charged.
Property prices will rise in line with earnings and these are showing steady if unspectacular growth.
Also remember there is no stamp duty to pay if you subdivide a property, spec it up to increase the rent or apply for planning for that extension/loft conversion.
It’s a good time to future proof your property of portfolio to maximise the rent and minimise the effects of MIR- and watch the ups and downs of shares and bitcoin with a sense of relief.
The RLA’s Future Renting North conference is a must for northern landlords looking to future-proof their investments, with information on everything from welfare reform and tax to architectural design to property tech.
The conference will be held on April 24 at the Concorde Conference Centre in Manchester, with delegates also given the opportunity to take a free tour of the iconic aircraft.
Early bird tickets are now on sale priced at £45 for members and £60 for non-members, including lunch and refreshments.
For up-to-date information and tickets visit www.rla.org.uk/conference/future-renting-north/