Hello readers,
I’ve been reading about the performance of the property market and am pleased to see things starting to turn a corner with UK house prices increasing by 1.4% so far this year, being on track to achieve 2.5% by December.
This is certainly welcome news to investors who have seen an extremely challenging few years. There has, however, been one property type which has continually underperformed and that is flats.
Since 2019, flat prices are up by 14% with the average cost being £232,400, however detached, semi-detached and terraced houses increased by 30%. That’s over 50% difference!
If you look at this graph, you will see how stark this difference is with flats seriously underperforming all other types.
Flat Price Growth 2015 – 2024 (South East England)
The question is, why does this trend seem to be so sticky? The answer, I think, is due to several factors. This includes the shift to flexible working, landlords exiting the market and concerns about cladding. I also think that the ‘race for space’ during COVID-19 has had a sustained impact.
This change looks to be permanent, with Tom Bill, Head of UK residential research at Knight Frank commenting that this change is the consequence of “more permanent changes to the way people are looking at their work-life balance, with increased working from home”. In addition to this, Paul Dales, an economist at Capital Economics explained that flat prices had been affected by a “structural shift in people wanting more space after the pandemic”.
So, the data is fairly clear – appreciation from houses looks to be stronger than flats, but how do rental rates stack up?
Well, I’ve put together some very rough helpful figures below that shows how flats are likely to generate the best gross profit on cashflow, but the picture is different when you look at appreciation.
Medway Rental Performance Illustration
In conclusion, what do I think about flats?
Personally, I would recommend investing in freehold houses not just due to the appreciation issue but also things such as service charges and leasehold renewal costs which are not in the investor’s control.
Interestingly, the average rental rate for detached houses appears to leave investors loss making on cashflow if they have a 75% LTV mortgage!
I’d be interested to hear what you think about this. Do you have flats as part of your portfolio and are your plans to hold, sell or expand? The best way to reach me is through LinkedIn.
Hasan
