Property consultants King Sturge have revealed that new apartment yields still continue to beat other long term investments.
Assessing the market for investors in its twice yearly report City Living: Apartment Development Markets King Sturge compares new build apartments with other investments and finds.
New apartment yields stood at 4.9% in September, unchanged since March. By comparison equity and gilt yields stood at 3.0% and 4.3% respectively.
The annualised growth for the new flat market in the 18 years to 2005 was 7.3% compared to 4.5% for the equity market. New flats price growth has exceeded the equity market on five, 10 and 15-year annualised bases.
New flats have been less risky for investors in terms of price movements over the last 18 years. The standard deviation for annual growth is 9.0 for new flats and 15.2 for the equity market.
With the ability to hold residential property in Self Invested Personal Pensions from April 2006, new apartments will be attractive to pension fund investors wishing to acquire low-maintenance stock with good long-term performance.
Guy Weston, senior analyst at King Sturge, says: Price growth for one-bedroom apartments will continue to exceed that of two-bedroom stock following recent trends in tenant and purchaser interest. More sustainable yields are also generally achievable for more affordable rental stock.
The lettings market has strengthened in recent months as aspiring first-time buyers opt to rent. This has reduced the void risk for investors, though the supply of city centre stock to the market resulted in stable yields over the six months to September. It is expected that there will be a rise in demand from young professionals preferring to rent in fashionable areas near their own social circle rather than buy in lower-priced areas.
The average buy-to-let mortgage in September was down to 5% from around 5.75% 12 months previously, stimulating a bout of remortgaging and subsequently alleviating pressure on investors profit margins.
King Sturge says that the proportion of buy-to-let mortgages in arrears by three months or more edged up slightly in the first half of the year to 0.70%. This figure remains noticeably lower than the overall market rate of 0.87%.