London property rent market now offers higher returns

More London property owners may want to consider putting their property up for rent, as London property rent returns now appear to be improving, due to the ever-growing number of people seeking property to rent in the capital. In recent months, there has been a dramatic shift in supply and demand for property to rent, with the availability of good quality rental properties in London falling commercial inspections. London, a thriving cosmopolitan city, has long been a popular place to rent property. But finding a suitable property in London to rent has become more difficult due to a fall in the supply of rental property caused largely by a surge of ‘reluctant tenants’, according to the Association of Residential Letting Agents (ARLA).

More tenants are now negotiating extensions to their current rent contracts, due to a relative shortage of alternative properties to rent, according to various London estate agents, including Foxtons, a company which boasts a high renewal rate.ARLA research, conducted across UK landlords and letting agents revealed that the supply of property to rent has fallen, while rental demand has increased, partly because fewer people are currently buying property. Ian Potter, operations manager at ARLA, said: “Many people now in a position to buy are struggling to find the right property, as there is also a shortage of both properties for sale and realistic mortgages.”In the final quarter of last year, an average 41% of ARLA members surveyed reported more tenants than property available to rent.

Peter Rollings, the managing director of Marsh and Parsons, a leading London letting agent, commented: “Stock seems to be an issue in the rental market. It really confuses me as to where all this property has gone! “In reality, more people are just sitting on the fence at the moment and are opting not to rent out their property as they wait to see what happens in the sales property market.”The rise in tenant demand also comes at a time when the supply of new build residential property coming onto the rental market is falling. The National Housing Federation report that the number of new homes built in England and Wales is expected to fall this year to its lowest level since 1923. Property developers are on course to build under 123,000 homes between April 2009 and March 2010, 18,000 fewer than were built during the last financial year, due to the fact that most house builders cut back developments in light of the recession. This year will see the lowest total of new property since 1923/4, when just 86,000 homes were built, excluding the war years. “As demand exceeds supply we are faced with a new challenge – how to provide enough good-quality rental properties to meet this demand,” Potter added.

The decline in the London property rent market coupled with a rise in demand for property to rent is in turn causing a fall in rent void periods and an increase in rental prices and yields across much of London – an attractive proposition for rental property investors. Since January, Foxtons, for example, have had 20% more applicants for rented property than this time last year. This demand is leading to rent rises and an increase in renewals.Rollings concluded: There is likely to be a resurgence in the buy-to-let market this year, as more people are likely to want to take their money out of the banks, where they are getting negligible interest, and put it into something real and tangible. “[The London property rent market] will not only give people a current return of up to 7 per cent, but it will also provide them with capital appreciation over the medium-term.” A view mirrored by other London property agents such as Savills, who project that property price growth will far outstrip inflation over the next decade.Lucian Cook, director of Savills Research, said: “A regionalised property market recovery is now inevitable with a ripple effect rolling out from the prime markets of London and the South East.

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