Since the rather unexpected Brexit vote result earlier this year we’ve been surprised by the upturn in interest from investors (new and old, UK-based and international), looking to buy residential properties to let in Edinburgh. Likewise, there has been a spike in enquiries from our existing landlords looking to free up some money from their existing portfolio to invest in further buy to let properties. So, I thought; why not do a bit of digging into property values and rent values over the last 10 years or so to see how sound residential investment in Edinburgh really is. Here’s what I found……
Where to put your money
A good place to start is to compare returns from different asset classes to see how residential property has fared against other investment options. From a quick look online it’s clear to see that in the last 20 years, shares returns were outstripped by what you could make from property.
As the table (including Halifax house price data for this period) above illustrates, £100k invested in a property in 2000 brought in a 132% return whereas the same sum put into UK equities (with all dividends reinvested), made a 83% return. Likewise even during a time of turbulence, including a dotcom bust, the credit crisis and a housing crash, both property and shares (with dividends reinvested) managed to beat inflation which sat at 54% or 2.9% a year.
Edinburgh property values over the past decade
I love a bit of statistical analysis so I carried out a bit of analysis of average sale prices in Edinburgh (from ESPC archives) since 2005 with the help of our good friends at Warners Solicitors & Estate Agents.
Edinburgh average price grows and grows
In 2005 the average property price in Edinburgh was £174.2k. The average has now risen to £231.5k, an increase of almost 33% in 11 years. Bear in mind that this time period included the financial meltdown and associated ‘housing crash’ we all witnessed around 2008/09. Also, the average figures take an unfortunate ‘hit’ due to a drop in sales of higher value properties in recent years due to new LBTT banding which seriously penalises sales of these higher value properties (the average price of 4 bedroom houses in Edinburgh grew by a more modest 19.9% from 2005 to 2016).
The one-bedroom market
With my ‘letting agent’ hat on and focusing on my favourite size of property for investment (you’ve got to have a favourite!) the 1 bedroom market, the average price of a 1 bedroom flat in Edinburgh in 2005 was £108.5k. fast forward 11 years to 2016 and the average price of a 1 bedroom flat is now £143.3k, a whopping 32% jump. Just think; if you had invested £27k (25% deposit on a £108.5k purchase price) in a 1 bedroom property in 2005, your £27.1k equity will have grown to £61.7k (and that’s not including any amount you might have paid off over the 11 years or any rent you might have received…..we’ll move onto that shortly…).
Three-bedroom flats following similar trend
And the story is the same for 3 bedroom properties. In 2005 the average price of a 3 bedroom flat in Edinburgh was £208.1k. Roll on to today and the average price for this size of property is now £275.5k; that’s an increase in the property value of £67.5k or 32.4% growth. Brilliant. 2 bedroom properties also showed excellent growth over the same period with a 29.5% increase. ‘A picture speaks a thousand words’ so here’s a nice wee graph summarising all of this.
Rental Growth over the past decade
As letting agents we have access to some fantastic data from the portal Citylets which tracks rents for all property sizes. Looking at Average rent in Edinburgh in relation to inflation you can see from the following graph that rental growth has outstripped inflation in a big way. Infact since 2013 growth for rents for all properties in Edinburgh have accelerated aggressively upwards and show no signs of slowing.
Looking at rental growth by property size since 2007 you’ll see that rents for all property sizes in Edinburgh has grown significantly over this time period.
One-bedroom rents rise and rise
Reverting back to my ‘favourite’ 1 bedroom market, the average rent in 2008 stood at c £527 per month but it has now rocketed to £708 per month which is a 34% increase in less than 8 years. Bad news for tenants who are having to shell out far more of their salary on a place to live, but fantastic news for landlords with yields getting stronger and stronger.
It’s the same story for 2, 3, 4 and 5 bedroom properties. According to Citylets, the average rent in Edinburgh now stands at £1,104, up from £747 in 2008, a growth of 36% over that period. Rents for student properties in prime areas have burst through the £500/room mark in the last 12 months and with our waiting list already building up for the 2017-2018 academic year it looks like there are no sign of this growth slowing, even with the number of purpose built student blocks appearing around Causewayside, St Leonards and further afield.
Current rental market
The rental market is performing very well. There is huge tenant demand and just not enough rental properties available for let. We have a record low number of properties on the market for this time of year following a crazy summer of record rents across our portfolio (our average rent is now well over the £900/month mark) and we’ve seen record tenant demand (our ‘Time to Let’ properties over the summer shot down to 13 days which is great news for our landlords).
As quoted in Citylets’ most recent quarterly market report; “As anticipated for several quarters, average rents in Edinburgh have now broken the £1000 per month mark to reach £1014, up 7.6% year on year. Good news for landlords but concerning for tenants who may also find it increasingly hard to secure a rental in the capital due to the speed of letting for popular 1 and 2 bed properties, at 14 and 20 days respectively. These average Time To Lets usually cover the period for viewings, deposit collation and the obtaining of references”
The Private Rented Sector in the UK is booming after doubling in size in the last decade. By 2025, PwC has projected that more people will rent privately than will own a property with a mortgage. In real terms, that will mean an additional 1.8 million households looking to rent privately over the next decade……this paints a very appealing picture to landlords and to would-be property investors. Regulation around property safety and around the behaviour of letting agents is tightening which is great news for tenants and landlords as this will help customers tell the good for the bad. It will create a much safer environment for both landlords and tenants and we’re proud to say that we ‘sit on the right side of the fence’ and are leading by example in terms of the quality of our service we deliver and the quality of our rental properties.
If this has whetted your appetite…..
Interesting stuff, I am sure you will agree and a compelling story as to why you might look at investing in residential property or buy to let Edinburgh. If you’re interesting in having a chat about all things property investment or would like to find out more about how we help you source and purchase a buy to let property in Edinburgh please give me a call on 0131 221 8281 or email me at [email protected] and I would be delighted to talk through your options and discuss how we might be able to help.