High UK rentals suggest residential sector remains attractive investment despite various headwinds

[LONDON] Rents in the United Kingdom have hit all-time highs this year due to a shortage of rental properties, suggesting the country’s residential real estate remains an attractive investment. Market players say demand among foreign investors is still strong.

Average UK residential rents have risen by 9.7 per cent to an all-time record of £1,199 (S$2,002) a month, over the 12-month period ended April 2023, according to a rental index from HomeLet, which advises both landlords and tenants.

The index, which combines data from 4,500 UK agents and was produced in partnership with property consultancy Dataloft, showed London rentals rose 11 per cent to an average of £2,000 a month.

The most expensive average rents were in Westminster (£3,130); Kensington, Chelsea, Hammersmith and Fulham (£2,554); Camden and the City of London (£2,283); and Tower Hamlets, which includes the financial services-heavy Canary Wharf (£2,132).

Over the same 12-month period, South-east England’s monthly average rent rose by 9.7 per cent to £1,277, West Midlands’ by 9 per cent to £886 and Scotland’s by 12.1 per cent to £886.

In popular boroughs such as Westminster, rents have skyrocketed by as much as 49 per cent in the past five years.

The improving rents should support demand among foreign investors, who have had to deal with the downsides of a weaker pound and soaring maintenance costs. Some landlords have sold their properties because of higher taxes, tighter energy savings requirements and various other regulations.

After submitting a Freedom of Information request to the UK Land Registry, estate agents Benham & Reeves obtained data showing foreign investors from 50 nations own 187,275 properties in England and Wales.

Buyers from Hong Kong own the largest proportion of these properties, with 24,759 homes representing 13.2 per cent of the total.

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Next in line are Singaporeans who own 15,752 properties, or 8.4 per cent of the total. Investors from the United States account for 6.4 per cent, followed by the UAE (5.7 per cent), Ireland (5.3 per cent), Malaysia (5.2 per cent), China (4.6 per cent) and Australia (4.4 per cent).

Data on foreign-held rental properties is not disclosed, but agents generally agree that the proportion of the total is high.

“The stability of the London and UK property market is both reliable and profitable for investment buyers,” said Marc von Grundherr, a director at Benham & Reeves.

“We hear daily that tenants are struggling to find available rental properties,” said Andy Halstead, the chief executive of HomeLet. “Offers are often above the asking price, with many landlords receiving multiple offers for their properties.”

Dataloft noted in a report that rent increases are partly due to “unusual post-Covid factors”. During the pandemic, people enjoyed working from home in the country. But since then, there has been a rush to London and other cities. The foreign student and immigrant populations have also soared.

As demand pushes rents up, however, regulatory risks are rising. There are concerns about a new Renters Reform Bill, which will give renters the ability to challenge rent hikes. A new ombudsman will settle disputes between tenants and landlords, so tenants do not have to incur the expense of going to court.

Since high inflation has wrought much economic uncertainty, there are fears that tenants will have insufficient disposable income to meet rising rents. According to official estimates, about 27 per cent of average pre-tax earnings go towards rent.

Halstead of HomeLet advises landlords to “seriously consider rent guarantee insurance”.

The government is hoping developers will boost construction to meet the growing demand.

Sandra Jones, managing director of Dataloft, estimates there are about 40,000 new units available for rent. Another 15,000 homes are under construction and a further 45,000 are being planned.