According to Paragon’s latest Buy-to-Let index, rental incomes rose by 2.5% in December which brought the annual rate to 19.4%, representing the fastest annual growth rate since the index began in 2001.
Over the past quarter, rents rose by 8.1%. The regions with the highest rental incomes were London (£20,949), the South West (£14,691) and the South East (£11,630).
Gross rental yields rose in December to 6.2%, which was its highest level since April 2006. Paragon believes this marks the start of an upward trend in rental yields over 2008. Northern parts of the country performed strongest - the North achieved the highest yields in December (7.1%) followed by Yorkshire and the North West both at 7%.
Average investment property values have also continued to rise, although at a slower rate than rental incomes. Property values have experienced modest growth from £187,164 in November to £187,748 in December, which is a month-on-month increase of 0.3%.
The average property purchased 12 months ago has generated an overall return of 21.3%, taking account of both capital gain plus rental income. Total returns on a 12-month investment are 21.3%.
Terraced houses continued to generate the highest yields (6.7%), followed by semi-detached and detached properties, both at 6.1%. Flats fell slightly behind at 5.5%.
London is the most expensive location to go shopping
London has the world’s most expensive retail space with peak rents of £749 sq ft per annum on New Bonds Street, according to the NAI Global’s Market Report.
London ’s St James Street, Oxford Street and Oxford Street East also topped £503 sq ft for prime street front space.
David Soloman, NAI Restore president, said: “With its large, affluent local population and strong international tourism, London has become one of the world’s most desirable retail markets.”
Hong Kong was second with peak rents at £624 sq ft, followed by New York City at £604 sq ft. At £519 sq ft, prime downtown retail space in Dublin is nearly twice as expensive as the next closest market, Moscow, which reported rents of £280 sq ft, followed by San Francisco at £244 sq ft, Chicago at £226 sq ft, Frankfurt at £192 sq ft, Copenhagen £169 sq ft and then Shanghai at £168 sq ft.
Flat rate of 18% CGT
Alistair Darling has confirmed a flat rate of 18% of capital gains tax (CGT) which will be introduced on 5 th April but has offered concessions to small business owners.
Under the revised proposals, small business owners will only have to pay 10% tax on any profits they make up to a cumulative limit of £1m. Any profits beyond this will be taxed at the higher rate of 18%.
Darling proposed in October’s pre-Budget report to scrap the lower 10% CGT rate and replace it with an 18% flat rate which spurred months of lobbying from business groups and small firms claiming it stifled entrepreneurialism. The Chancellor announced further decisions will be held with the insurance industry to find a solution to the problems caused in the insurance bond market by the proposed changes to capital gains tax.
Savills fears this ‘first slice’ relief would be calculated on a lifetime basis with the rate returning to 18% once it is used up. Whilst it will help small businesses in one-off asset sales, Savills believes it is of little benefit to the serial entrepreneur or those with a large trading asset base.
£120 charge…not appealing
Local residents face having to pay £120 if they want to appeal against a decision by their council not to grant planning permission for many minor schemes to improve their homes such as loft conversions, house extensions, fencing and replacement windows, under new laws set to be introduced by the Government.
The Royal Town Planning Institute (RTPI) has launched a campaign to get the measure scrapped and has called on residents to contact their MPs and councillors to voice their opposition. Appeals are presently heard by the Independent Planning Inspectorate and are free of charge.
Robert Upton, secretary-general of the RTPI, said: “This would be a stealth tax which hundreds of ordinary people will have to pay if they disagree with the council and want to appeal against a decision. It is also totally wrong as a matter of principle that councils should be hearing appeals against their own decisions.”
Ministers want to remove the existing right of appeal to an independent and impartial body, known as the Planning Inspectorate, and replace it with a new system which could see councillors, possibly from other authorities, sitting in judgement over local residents’ appeals against refusals of planning applications.
Businesses also face having to pay the hefty charge for minor appeals against decisions involving shop fronts and small changes to land use.
Expansion of Newquay Airport gets go-ahead
Plans for an expansion of Newquay Airport have been given the go-ahead by Cornwall County Council.
Consent has been given for a series of improvements to the airport which aims to increase both its capacity and the facilities and services it can offer passengers. Among the developments for the airport include a new arrivals hall, conversion of the existing baggage hall into a departure lounge and additional car parking.
Andrew Mitchell, Cornwall County Council’s executive member for the economy, said: “This is great news for Newquay Cornwall Airport and we can now press ahead with our exciting plans to develop the terminal and provide improved facilities for our airline partners and passengers. This year will be a momentous year with a major investment programme delivering the move to a full civil operation, exciting new routes, new facilities and new capacity, confirming the airport's status as one of Cornwall's most important gateways.”
Risk of recession in two years
The UK economy is set to experience its weakest period of growth in 15 years and there is a risk of a recession in the next two years, according to the Deloitte Economic Review, which said the housing market would be at the heart of the downturn with prices falling by about 5% this year.
Deloitte said a prolonged economic downturn may also force employers to ‘wield the axe more sharply’. Experian, a financial data firm, said that 10,000-20,000 of London's 400,000 financial services jobs could be lost over the next 18 months. Roger Bootle, Deloitte’s economic advisor, expects house prices to fall by 8% in 2009.
Unlike in 2005, Deloitte said the UK economy would not be bailed out by a strong world economy. It expects US growth to slow to zero in the first half of this year.
And while the European economy, the UK’s biggest export market, will remain relatively strong, it will not be enough to offset a US slowdown, the report says. Nor will the rapidly growing economies of India and China come to the UK’s rescue, as the two countries buy less than 5% of UK exports.
In addition, Deloitte has forecasted that the UK base rate will fall to 4% in 2009, and it expects the UK economy to grow by 2% this year and by a slightly smaller margin in 2009.
“Slowdown in buy-to-let market”, says Savills
Prospects of reduced returns over the next five years are likely to lead to a period of consolidation and a slowdown in the growth of the buy-to-let sector but not a significant withdrawal from the market, according to Savills’ latest buy-to-let survey.
The survey of just under 400 buy-to-let investors identified four key reasons for this conclusion:
The vast majority of owners view their investment as long term, with 55% wanting to retain their portfolio for at least 10 years and 71% relying on their investment to provide part of their pension. There was a dominance of large investors with an equity cushion – 70% of landlords owning more than 20 properties have more than 25% equity in their property holding. The majority of owners were able to meet existing borrowing costs out of rental income. Only 10% of owners would currently consider an outright sale even in the event of further pressure on returns.
Jacqui Daly of Savills research said: “We expect this slowdown in the expansion of the sector to be accompanied by a change in the profile of properties acquired by buy-to-let investors. There will be a shift away from new build flats where returns are likely to be under the greatest pressure. Whilst 55% of owners own new build flats within their portfolio, only 24% of respondents would look to expand their portfolio by acquiring this property type.”
Variances in UK house prices
Depending upon the region, some house prices in England and Wales fell marginally in December, according to Land Registry while others increased slightly.
Figures showed a 0.4% drop in prices during the month, taking the average figure to £184,469.
However there were some regional variations, with the North East seeing a rise of 2.2% in prices.
Other areas to see price rises were the east (1.1%) and London (0.6%).The greatest fall came in the East Midlands where there was a 3.3% decline.
Those with buy-to-let mortgages in areas which continued to see prices rise may enjoy increased demand for their property as increases in price make homes comparatively less affordable there than in other areas.
The figures are in line with a number of recent house price surveys which have shown small declines in prices.
Earlier this week property website Rightmove recorded a 0.3% fall in January.
Bleak outlook for all commercial sectors
According to the Royal Institution of Chartered Surveyors’ (RICS) latest commercial property survey, tenant demand has fallen to a level that hasn’t been seen since 2003.
Surveyors have reported a sharp fall in demand for commercial property in Q4 2007 with a balance of -12% more chartered surveyors reported a rise than a fall in demand compared to a balance of -2% in Q3 2007.
All sectors reported a fall for the first time since the first quarter of 2003. The number of surveyors that reported a decline in office demand also moved into negative territory for the first time in over four years, but the biggest decline was in the retail sector as demand fell at its fastest pace in six years.
“Pessimism regarding the near-term economic outlook has started to make serious dents in market sentiment as surveyors start to see the previously strong office sector join the retail market in decline”, said Simon Rubinsohn, RICS chief economist. “While finance remains scarce, commercial property’s continued reliance on capital funding could see the market dip further.”
New buyer enquiries also fell across all three sectors. The retail sector witnessed the sharpest decline in enquiry levels, with the greatest declines in central London and Wales. As for demand for office space, the number of surveyors reporting a fall in enquiries increased to the worst level since the first quarter of 2003, the survey said.
Looking forward, surveyors continued to be pessimistic as a bleaker outlook is anticipated across all sectors.
Faster rail journeys for Wales
According to Wales’ deputy first minister Ieuan Wyn Jones, faster rail journeys between north and south Wales will be a key component of the Welsh Assembly Government’s (WAG) new transport strategy.
The WAG is developing a national transport strategy due to be launched in the spring and would be tailored to maximise economic benefits.
Jones said that despite tough spending limits, improving Wales’ public transport links and road networks were priorities. He pledged that transport spending would exceed the £50m committed for 2007-11 in last year’s Labour-Plaid Cymru coalition deal.
