There’s a lot of interest and speculation about the prospects for the rental property market post Brexit. Understanding what happened during the credit crunch, and what has happened since, should help us better understand the possible ramifications for rental income and property values for long-term investors in the Colchester property market.
The performance of rental income over time is an important factor when working out the yield on property investments. The yield, or annual return, is calculated by dividing the annual rental income into the value, or purchase price, of the property. Since 2005 rents in Colchester, like the rest of Britain, have been steadily increasing, apart from a slight drop during the 2008/9 credit crunch.
Rental income in Colchester today is 18.6% higher compared to the beginning of 2005. Over the last five years there has been an average 1.9% growth per annum in rental income in Colchester. That sounds like good news from a landlord’s point of view until we take inflation into account. Consider a property being rented for £900 a month in 2005 that’s still being rented at £900 a month today. Although the landlord is getting the same rental income it’s not worth as much. For example in 2005 that £900 could have bought a two week 4 star holiday but today that same holiday would cost £1,246 (£900 + 38.5% inflation = £1246).
Although rental income in Colchester has increased by 18.6% since 2005 taking 38.5% inflation, over the same period, into account Colchester landlords are actually 19.9% worse off in real terms compared to 2005.
Apart from rental income the other way property investments generate (or lose) money is the increase (or decrease) in property values over time. Since 2005 property values in Colchester have risen by 48.8%. This works out at a reasonably healthy 4.06% per annum increase over the last 12 years, including the 2008/9 property crash, which is much better news for Colchester landlords and property investors.
The prospects for property investment, as we head towards Brexit, remain uncertain. There’s no obvious easy wins but the recent experience of the 2008/9 crash suggests the property market is likely to recover over the middle to longer term.
Landlords often ask me to look over the spread of their rental portfolios and, taking into account their needs for the future, I’m generally looking for a balance between capital growth and yield while at the same time spreading the risk. If you’re considering investing in the Colchester property market be sure to do your homework. Local knowledge is the real key to success – don’t be swayed by attractive looking yields on properties without understanding which local areas don’t have the fundamentals in place to sustain those yields into the future. Similarly, if you are looking for capital growth, you’ll need local knowledge to help identify the hidden gems. Read the articles on my blog and be sure to subscribe to my newsletter.
Ask your agent for a portfolio analysis showing past performance and anticipated investment opportunities and remember to take inflation into account. If they can’t help or don’t have local expertise why not ask me? Give me a ring on 01206 862288 or email firstname.lastname@example.org. I’m happy to offer a free honest opinion on properties (send me the Rightmove or Zoopla links) or any aspect of investing in property in Colchester and will often get back to you within 24 hours.