Some interesting research from QBGroup.eu takes an in-depth look at gross and real yields in the buy-to-let market – they argue that it is important for investors to understand the real yield which also takes into account the change in value of the investment property.
The analysis, carried out in February 2013, is based on typical 2 bedroom properties and combines changes in the capital values and gross rental yields to reveal a top 10 of property investment hotspots in the UK market for buy-to-let investors.Reiza KR Qureshi, director at QBGroup.eu, said: “Most landlords appreciate that gross rental yields do not take account of the costs of maintaining, letting and insuring a property, yet many fail to consider the rise and fall of capital values in this equation. While we would expect the key rental hotspots to typically mirror economic activity across the country, the revelation in this new research is that the highest real yields are all in London. Despite the initial high capital costs, the combination of accumulating capital value and reasonable gross yields can make these areas look very attractive to potential investors.
“It’s also important to note that these top performing areas are all in central London, a specialised sub-market of the wider UK property market and one where many of its residents have survived the recession well. The people who reside in such areas have maintained their employment status and continue to enjoy a successful career path. Key demand drivers are equally about easy access to work and social networks. Shoreditch is a perfect example and the consistent high demand for such properties has kept both sales and rental prices on an upward trajectory.
“Given our new take on yields, at the other end of the scale there are areas of the UK where landlords are losing money just by owning the property, even if their properties not subject to void periods and attract healthy gross yields. For example, the real yield for Margate property at -9.8% is a real concern for landlords, even though the a gross rental yield is currently 5.1%.”
Top 10 Property Investment Locations – based on Real Rental Yields for 2-bed properties
| Location | % change in average sales price vs. Feb’12 | Gross rental yield |
REAL YIELD |
| 1 – Shoreditch | 32.22% | 4.33% | 36.55% |
| 2 – Bloomsbury | 33.52% | 3.02% | 36.54% |
| 3 – Bethnal Green | 28.81% | 4.89% | 33.70% |
| 4 – Elephant & Castle | 27.78% | 4.29% | 32.07% |
| 5 – Chelsea | 28.14% | 3.06% | 31.20% |
| 6 – Bermondsey | 26.44% | 4.54% | 30.98% |
| 7 – Battersea | 25.00% | 4.12% | 29.12% |
| 8 – Hammersmith | 25.01% | 4.02% | 29.04% |
| 9 – West Brompton | 25.01% | 3.81% | 28.82% |
| 10 –Vauxhall | 25.00% | 3.64% | 28.64% |
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