Playing the long game in property investment
Playing the long game in property investment
By Peter Sharkey
Academics and analysts have, for years, pondered over one of life’s greatest unsolved mysteries: why are the folks who occupy a small collection of islands off the coast of northern Europe so obsessed with property?
In some respects, the answer has its roots in post-war Britain. According to Andrew Marr’s excellent History of Modern Britain, more than a million children were born between 1945-50, although “there were not nearly enough individual homes to go round,” he writes. This situation resulted in “hundreds of thousands of people…living with their in-laws, deprived of privacy and locked in inter-generational rows” as their children grew up.
‘Prefabs’, factory-built instant homes (156,000 of them were erected between 1945-49) were intended only as a temporary measure, but the acute shortage of post-war housing created unprecedented demand for bricks-and-mortar-built properties. This surge in demand was accompanied by another previously little-noticed but burgeoning feature: Britons’ aspirational pursuit of real estate.
It’s reasonable to assume that this ‘aspirational pursuit’ was exported to the Isle of Man. Evidence exists in the latest Isle of Man In Numbers report, published in May by the Economic Affairs office, which shows existing residents’ country of birth: almost half (49.8%) were born here, yet more than a third (33.9%) were born in the UK.
There are, as we know, myriad reasons which explain property’s unique appeal.
1. Unlike the rather esoteric concept of a company shareholding, property is real and tangible. You can look, examine and touch a house.
2. Property is nowhere near as illiquid as some people make out. Even in a stagnant market, provided a property is well presented, correctly located and priced, it will almost always sell.
3. In the longer-term, property values tend to rise faster than inflation. The old American adage that it’s difficult to overpay for a property, but you can certainly buy too soon holds true on this side of the Atlantic.
4. Fourthly, property ownership confers status upon those whose names are on the deeds; that, in itself, remains part of property’s aspirational ‘pull’.
To accommodate these factors, a variety of mortgage products have evolved since 1945 to help those wishing to buy, either for occupation or, more recently, investment.
History shows us that there is a flip-side to property ownership. When mortgage credit becomes too readily available (primarily because lenders flush with cash impose targets on managers who then widen loan-to-value ratios), problems occur – as happened with America’s sub-prime mortgage crisis in 2007.
Despite this, however, property has lost little of its lustre and across the Island the historic reasons underpinning its appeal are being supplemented by a range of compelling trends which are persuading an increasing number of investors to seriously consider the attractions of buy-to-let (BTL).
Last month’s report published by the Economic Affairs office highlighted several important features, each of which augurs well for property investors.
Average house and apartment prices rose again in the year ending December 2018, to £271,411 and £151,967 respectively, although anecdotal evidence suggests that growth in investment property values outstripped the Island’s average rate. The reason is simple: demand for investment property exceeds supply and, wherever the quantity of any product is limited, its price rises.
According to the report, several additional factors are driving rental demand. For example, median weekly earnings continue to rise steadily – and across all sectors of the labour market, while the level of government house purchase assistance has fallen markedly, from a peak of £5.79 million in 2007-08 to last year’s £804,900.
On top of these market-boosting characteristics is perhaps the most important one of all: steady population growth. In the twenty year period between 1951-71, the Island’s population actually fell, from 54,000 to 53,000. Since then, it has risen by 56%, to 83,000, fuelling demand from investors for investment property and from tenants for decent quality accommodation.
Should property values continue their upward trajectory, the percentage of Isle of Man households renting their homes appears set to rise steadily over the next decade, increasing demand for rental property which, in turn, will result in a gradual increase in rental yields.
It’s worth noting that few investors buy investment property solely for income; longer term capital growth is what draws people into the sector.
Granted, letting property to students is a popular method of generating gross yields of between 7%-7.5% and a modicum of capital growth, but such properties require intensive, on-the-spot management.
Fortunately, one area of the buy-to-let sector offers gross yields of between 4.5%-5.5%, is not prohibitively expensive to enter and is expected to provide investors with solid capital growth. Letting to professionals, be they people working here on contract, or permanent residents looking to buy a family home, provides a balance between income and growth and tends not to be as management-intensive as some other areas of the BTL market.
The icing on the investment property cake is the growing availability of investment property mortgages. Some of the most attractive deals offer mortgages of up to 75% to borrowers at rates below 3% for up to two years. For investors who appreciate property’s aspirational qualities, this might be an opportune moment to consider the BTL market.
Hartford Homes currently have a range of modern, new build investment properties available for sale, each yielding in excess of 5%.
For details of our residential and commercial investment property, please visit https://hartford.im/investment
To discuss your specific requirements, please contact us at [email protected] or telephone +44 (0) 1624 631000.
Peter Sharkey writes regularly for Hartford Homes. © Sharks Media Ltd
Download PDFs for this news article: