News and Press releases

Rents drive housing investment more than capital gain

26/07/2009

David Alexander, owner of letting agent DJ Alexander, said investors are entering the residential property market because of the rental income available. While some bank
Accounts are paying as little as 0.5 per cent a year, landlords are getting returns of4 per cent, after expenses, in popular rental areas of Edinburgh and Glasgow.

With house prices remaining flat or falling, capital growth, which traditionally motivated clients to invest in residential property, is taking a back seat. Alexander said investors accept that a recovery in capital values, and further growth, will be a medium to long-term process. He added that tenanted properties in locations are attracting the attention of investors who would normally put their substantial cash savings in bank accounts.

Alexander said: “It is the current return from rental income that is attracting clients, rather than the prospect of capital growth, which, during the 27 years my firm has been in business, has been the raison d‘être for residential property investment.”

He said new investors are opting for residential property with an “open mind and a clear head”. They are prepared for the possibility that, three months from now, the market value of their properties may actually be less than they paid.

“They are confident that, unless the world turns completely upside down, values will recover in line with an improving economy. Eventually, the mixture of capital growth and ongoing rental return, will make their investment in stone and mortar pretty hard to beat,” he said.

However, Alexander said his comments should not be taken as a recommendation to start investing in residential property. “I have no idea how much further the market has to fall. A few months ago I took the view that we may see the first, hesitant signs of an upturn later this year but I now fear that this may not occur until some time into 2010.”

SCOTLAND ON SUNDAY, 26 July 2009

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