Residential property supply and demand
The latest RICS Residential Lettings Survey, published today, has found that falling supply of new property to the rental market coupled with increased demand has led to a rise in rents over the past three months.
39% more surveyors have reported seeing higher rents in the three month period to the end of October 2010.
This means that the net balance is now at its highest level since Q2 2007 as increasing numbers of people rent rather than buy property.
All of this points towards a more buoyant rental market. Lets are being filled more quickly and landlords are experiencing fewer void periods.
At the same time, supply in the residential property lettings market appears to be falling. New landlord instructions, which are a good indicator of supply, have fallen again for the fifth consecutive quarter.
Whilst growing demand and falling supply should make residential property lettings look more attractive, we remain sceptical about the investment potential for buy-to-let property.
In an economic environment where access to lending remains restricted, investors should be cautious about taking on debt to finance a property investment if that debt will need rearranging in the future.
Investors who leverage their investment in property also need to think ahead towards possible interest rate rises in the future, particularly if the loans they are able to access are on a variable basis.
Residential property investment continues to represent a significant risk for individual investors due to the concentration within their overall portfolio of a single asset class and often a single investment asset.
Falling supply and growing demand in an asset class would usually signal an investment opportunity to consider. Residential property is quite a different proposition.
Photo credit: Flickr/*Jeffrey*