The latest figures for property investment have just been published. We subscribe to PropertyData which provides detailed analysis of Investment transactions month on month. The December 2009 figures have just been released – which also give us a chance to review the annual performance of the market.
The value of transactions over 5 years - from Property Data
The striking feature was that the value of transactions in 2009 was lower than 2008 – which we thought was the bottom of the market!
The general view is that the market improved at the end of the year – so perhaps 2010 will be better?
Property values are also published – and in the investment market we measure value by ‘yields’. This is simply the return of rent in comparison to capital value. It is no more complex than looking at returns at the Bank or Building Society. We like to make valuation something of a ‘black art’ though – by doing various adjustments for costs, tax etc. But the fundamentals remain – it is a return on value.
It is helpful to compare what you might get for your cash at the Banks. According to the ubiquitous Martyn Lewis the best you can get on instant cash is around 3.35% (worst is 0.1%!). If you lock your money up for 3 years then you could get 4.7%.
PropertyData calculate some average yields (and acknowledge the dangers of averages). But they show some interesting figures for the last three months, by property type:
West End offices London – 6.66%
Regional Offices – 7.75%
Unit shops – 6.7%
Retail Warehouses – 7.14%
Industrial Units – 7.65%
It is interesting to note is the bunching of yields – the average spread across the sectors is only approximately 1%.
Also, returns are higher than cash – there are some obvious reasons. The market is quite illiquid – i.e. the costs of entry and exit are high (Stamp Duty can be 4% on large value transactions). There are risks associated with the income – it is not note necessarily ‘gilt edged’. Buying with borrowed money is difficult too – although the Base Rate is low at 0.5% – this rate is not readily available!
But if you can find property to invest in – the current returns look quite attractive! And if you need help give me a shout!
