Investors return to city centres

Investors are being drawn back to city centre apartments, which are now offering gross yields of as much as 11% as a result of current low prices, reports Assetz.

Contary to popular belief, demand for city centre rentals remains high, driven by young professionals, students and foreign workers, especially those potential first time buyers who are unable to secure finance to buy their first home. Over the next five year period, demand is expected to be substantially greater than supply in key cities such as Manchester, Birmingham and Liverpool as further city centre development stalls.

Investors who have held off from expanding their portfolios over the last eighteen months are being tempted by deals being offered by developers, with prices as much as 50% lower than peak prices, delivering gross yields of up to 11% and net yields of 7% or greater. Savings accounts are generating very poor returns and with concerns over pension provisions growing, investors are looking for long term, high income investments.

Stuart Law, Chief Executive of Assetz, said:

"City centres are offering excellent value for money and once the financial crisis is over, strong rental demand and high yields will help support price growth. Investors are taking advantage of low prices to make their money work for them and they are less concerned with immediate capital growth than with strong and steady rental income. Investors who buy in developments which have a good mix of owner occupiers and private tenants are well positioned to generate high yields from quality tenants, whilst ensuring an exit strategy if they wish to sell in the future."

Assetz reports that the majority of these investors are using interest only mortgages, then reinvesting the rental income in additional properties to expand their portfolios. Their long term plan is often to sell one or two properties at the end of the mortgage term and use the capital to pay off loans on the remaining portfolio - leaving them with a healthy supplement to their retirement income.The yields are high enough, however, to permit repayment mortgages to be viable once again - a situation not seen for many years.

While buy to let finance remains restricted, those with a deposit of 30 - 35% and a good credit rating are able to access the loans they need. A studio apartment may cost in the region of £65,000, requiring a deposit of just £19,500, which is easily accessible by most buy to let investors.

Foreign investors too are driving demand for city centre properties, as they continue to benefit from the improved affordability of foreign buyers, given the sharp fall in sterling versus most leading currencies.