Investing in Property - UK - June 2009

Table of Contents

• Issues in the Market
• Key issues explored
• Market definitions
• Abbreviations
• Market in Brief
• Current state of the buy-to-let market
• Buy-to-let outlook: Some positives as well as negatives
• Current state of the property fund market
• Property fund outlook: Finding opportunity in a crisis
• One in eight UK adults own some form of property investment
  • Figure 1: Ownership of direct and indirect property investments, by types, March 2009
• Indirect property investors are a pragmatic bunch
• Collective investments perceived riskier than UK residential property
• Consumers expect prices to fall further over the next 12 months...
  • Figure 2: Expectation of house price movement, March 2009
• ...but there are still potential buyers out there
• Figure 3: Financial priorities over the next 12 months, March 2009
• Buy-to-let has wide appeal
• Most people think property is a good bet for the long term
  • Figure 4: Agreement with statements about buying and investing in property, March 2009
• Economic and Investment Environment
• Key points
• Summary of the main macroeconomic indicators
• Bank base rate slashed
  • Figure 5: Average annual changes in the bank base rate, CPI and RPI -- UK, 2000-09
• LIBOR and base rate gap narrows
• Stockmarket turmoil -- have we passed the bottom?
  • Figure 6: FTSE 100 and FTSE All-Share -- daily index movements, April 2000-April 2009
• Commercial property fund returns take a dive
  • Figure 7: Commercial property returns, by sector, 2003-08
• Implication and opportunity
• Housing and Rental Markets
• Key points
• Credit crunch slows housing activity...
  • Figure 8: Number of UK residential property transactions with a value of £40,000 upwards -- seasonally adjusted, Q2 2005-Q1 2009
• ...leading to growth in accidental landlords
• Sharp drop in house prices
  • Figure 9: Annual house price growth in the UK -- comprison of four sources, 2003-08 (Quarter 4)
• A silver lining?
• Rental yields edging up?
  • Figure 10: Average rental yields -- England and Wales, May 2003-June 2008
• Geared investments offer better returns than cash buys
  • Figure 11: Annual rates of return on buy-to-let investment -- cash purchase, by region, Q1 2009
  • Figure 12: Annual rates of return on buy-to-let investment -- geared investment, by region, Q1 2009
• Most residential investment landlords are in it for the long haul
• Landlords must contend with increased paperwork
• Social Drivers -- UK Rental Market
• Key points
• One in seven dwellings in England and Wales are privately rented
  • Figure 13: Distribution of dwellings, by tenure -- England and Wales, 1981-2008
• Buy-to-let finances two fifths of privately rented homes
• Changing social trends fuel demand for rented property
• Rise in one-person households
  • Figure 14: Total number and average size of households in the UK, 1991-2014
• Recession could drive up the divorce rate
  • Figure 15: Number of marriages and divorces -- England and Wales, 1996-2006
• Students are a key target market for private landlords
  • Figure 16: Number of students in Further and Higher Education -- UK, 1970/71-2006/07
• Recent years have seen more people enter the UK than leave...
  • Figure 17: International migration flows, 1975-2007
• ...but is this about to change?
• Sharp drop in new private builds expected
  • Figure 18: Number of permanent dwellings completed, by tenure -- UK, 1990/91-2007/08
• Competitive Context
• Key points
• Rising house prices boosted personal wealth over 1999-2007 period
  • Figure 19: Net worth of the UK household sector, 1999-2007
• All change
• Second homes
• The allure of property...
• ...but cash is king
  • Figure 20: Preferred option for saving for the future, March 2009
• Competition comes from within the property sector as well as from outside
  • Figure 21: Summary of the competitive environment for retail property investment, 2009
• Returns on property versus other major asset classes
  • Figure 22: Total returns, by asset class, 2004-07
• Implication and opportunity
• Direct Investment: Strengths and Weaknesses
  • Figure 23: Buy-to-let mortgage market -- SWOT analysis, 2009
• Direct Investment: Buy-to-let Market Overview
• Key points
• The rise of buy-to-let
• Credit crunch forces major market contraction
• Many lenders have exited the market
  • Figure 24: Market share of the top buy-to-let mortgage lenders, by amounts outstanding, 2008
• Market expansion slows
  • Figure 25: Number and value of buy-to-let mortgages outstanding, 2000-08 (year end)
• New business levels fall
  • Figure 26: Number and value of new buy-to-let mortgage advances, 2000-08
• Arrears and repossessions rise
  • Figure 27: Buy-to-let mortgages three or more months in arrears and with receiver of rent in place, 2007 and 2008
• Outlook for 2009
• Make way for the big boys
• Not all bad news
• Indirect Investment: Strengths and Weaknesses
  • Figure 28: Indirect property investment market -- SWOT analysis, 2009
• Indirect Investment: Property Funds Overview
• Key points
• Financial crisis damages confidence in property funds
  • Figure 29: UK domiciled unit trust and OEIC funds under management -- property versus whole market, 2004-08
• In 2008, more money flowed out of the sector than in
  • Figure 30: Net sales of property unit trusts and OEICs, 2004-08
• Meeting demand for instant accessibility can be problematic
• Outlook for property funds
• REITs experience tough times
• Falling value of UK-based REITs
  • Figure 31: Market capitalisation of UK-based REITs, July 2008 and May 2009
• Outlook for REITs
• The Consumer -- Preferred Investment Approach
• Key points
• Survey background
• Cash is best
  • Figure 32: Preferred option for saving for the future, by gender and socio-economic group, March 2009
• Implication and opportunity
• Over a third of 25-34-year-olds put their faith in property
  • Figure 33: Preferred option for saving for the future, by age, March 2009
• Implication and opportunity
• The Consumer -- Asset Ownership
• Key points
• One in eight in the UK invest in property
  • Figure 34: Ownership of savings and investments, by gender, March 2009
• Profile of a typical property investor
• The results in detail
• Most property investors invest directly
  • Figure 35: Ownership of property investments, by gender and socio-economic group, March 2009
• Implication and opportunity
• Over-55s represent the key target market for property funds
  • Figure 36: Ownership of property investments, by age, March 2009
• Implication and opportunity
• Note
• The Consumer -- Perception of Risk
• Key points
• More people think investing in property is ' risky' than ' safe'
  • Figure 37: Perceived level of risk associated with selected savings and investments over the medium to long term, March 2009
• Property investors get wake-up call
• AB, C2s and those aged 45-54 have the greatest faith in UK residential property
  • Figure 38: Perceived level of risk associated with UK residential property over the medium to long term, by gender, age and socio-economic group, March 2009
• Four in five over-55s view overseas residential property as risky
  • Figure 39: Perceived level of risk associated with overseas residential property over the medium to long term, by gender, age and socio-economic group, March 2009
• Commercial property gets riskier with age
  • Figure 40: Perceived level of risk associated with commercial property over the medium to long term, by gender, age and socio-economic group, March 2009
• The Consumer -- Investor Experiences
• Key points
• Property investors are down but not out
  • Figure 41: Agreement with statements about investing in property funds, March 2009
• Implication and opportunity
• The Consumer -- House Price Predictions
• Key points
• Two thirds expect house prices to fall further over the coming year
  • Figure 42: Expectation of house price movement, March 2009
• Implication and opportunity
• Expectations are influenced by personal aspirations
  • Figure 43: Expectation of house price movement, by gender and age, March 2009
• Implication and opportunity
• Property investors are generally more bullish
  • Figure 44: Expectation of house price movement -- total sample versus property investors, March 2009
• The Consumer -- Financial Priorities
• Key points
• Managing household expenses and repaying debts are people' s top priorities
  • Figure 45: Financial priorities over the next 12 months, March 2009
• Subdued investment environment...
• ...and reduced housing activity
  • Figure 46: Financial priorities relating to property over the next 12 months, 2008 and 2009
• Implication and opportunity
• Men and women have slightly different financial concerns
  • Figure 47: Financial priorities over the next 12 months, by gender, March 2009
• Priorities change with age
  • Figure 48: Financial priorities over the next 12 months, by age, March 2009
• Implication and opportunity
• One in eight landlords expect to make further acquisitions
  • Figure 49: Financial priorities over the next 12 months -- total sample versus property investors, March 2009
• The Consumer -- Attitudes towards Property Investing
• Key points
• Buying property is a good investment, say over half of all adults
  • Figure 50: Agreement with statements about buying and investing in property, by gender, March 2009
• Implication and opportunity
• The over-55s have the greatest faith in property
  • Figure 51: Agreement with statements about buying and investing in property, by age, March 2009
• Implication and opportunity
• 42% of direct investors prefer to invest in property than in a pension
  • Figure 52: Agreement with statements about buying and investing in property -- total sample versus property investors, March 2009
• Implication and opportunity
• The Consumer -- Identifying Buy-to-let Targets
• Key points
• A third of adults are open to the possibility of buy-to-let
  • Figure 53: Agreement with statements about investing in buy-to-let, by gender, March 2009
• Implication and opportunity
• The younger age groups have higher concentrations of BTL prospects...
  • Figure 54: Agreement with statements about investing in buy-to-let, by age, March 2009
• ...as do those on the higher end of the socio-economic scale
  • Figure 55: Agreement with statements about investing in buy-to-let, by socio-economic group, March 2009
• Further analysis
• Appendix -- Property Investor Profile
  • Figure 56: Demographic profile of property investors, March 2009