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Buy to let investors still upbeat UK Bulgaria Properties

The average size of buy-to-let portfolios has risen from 4.9 to 5.7 properties since the previous quarter. This is a steady increase over the past year, from an average of 4.1 properties in June 2004.

Arla says that, underlining the stability of the rental market, 97 percent of all respondents report that, although the majority of tenancies agreed are for an average initial period of just over nine months, most tenants stay on for an average total of 17 months.

This is surprising since in some areas of London and the South East there is now a glut of rental properties and it is a tenants’ market. It is possible that tenants find that they can negotiate a cut in rent in return for signing a new lease, as landlords are anxious to keep good tenants.

Residential landlords are split fairly evenly between those who look for both a rental income and capital appreciation (47 percent) and those investing solely to create a nest egg for their future, to be realised nearly 20 years down the line (44 percent).

This near 50/50 split has changed only marginally since the last quarter, while only one in fifteen landlords have invested solely for the rental income. The average buy-to-let investor expects to hold properties for 17 years. Traditionally, professional property investors look at yields and invest for income with capital gains being the icing on the cake.

However, the lack of concern about rental yields could be explained by the fact that the average experience of buy-to-let investors is only 5.3 years as a landlord, while over 70 percent have two years’ experience of residential investment. "One of the significant advantages of buy-to-let to the private rented sector is the long term approach of the 21st century landlord," commented Adrian Turner, chief executive of Arla.

"From the beginning we knew that the concept of buy to let attracted the financially mature investor. Once again this is being illustrated by the clear understanding shown of the long-term, contra-cyclical nature of residential property investment. This allows the rental market to act as a safety valve for the whole housing sector," Turner said.

Almost half of all investors responding to the survey, some 46 percent, live in London and the South East, with almost a fifth, 19 percent, coming from London itself. The Midlands and the South West produced the next highest proportions of respondents at 13 percent each, followed by the North East with 9 percent and the North West with 7.3 percent.

Meanwhile property specialist Assetz has put together a dossier of what it describes as ’key investment criteria’ in various countries to form a property investment tracker.

Assetz is recommending investing in France, where minimum deposit is only 15 percent, advises caution in Bulgaria which is riskier, and warns investors to avoid Florida because of higher interest rates in the US.

Assetz says that as France’s minimum deposit requirement is only 15 percent it offers investors the opportunity to enjoy significant returns on a minimal initial investment. "Yields are stable at 7 percent or so and leaseback schemes offering lower guaranteed rental income are available at many locations where the government is keen to attract tourism into the area." Assetz claims that with capital gains last year at 15 percent, total returns on cash invested in France are around 92 percent.

"Cyprus is also currently a hotspot for overseas investors, with prices in Southern Cyprus rising by 18 percent in 2004 and are expected to rocket further with entry to the Euro beckoning in 2007/8," says the Assetz report. "Rental yields remain at a confident 8 percent with a year-round rental market in some parts of the island, accumulating a total 72 percent return on investment."

Investors looking to cash in on the Bulgarian property boom will need a minimum deposit of 30 percent of the purchase price. "Investors should be cautious in Bulgaria’s immature market," warns Stuart Law, managing director of Assetz.

"Property prices are growing significantly in the more established areas such as the Black Sea coastline and the major ski resorts, but many of the apparently ’bargain’ deals citing properties for under 30,000 euros (20,700 pounds) will be located in the more rural areas and are unlikely to enjoy such high growth rates and certainly not high rental yields," Law warns.

He points out that although capital gains last year stood at an impressive 20 percent, those considering investing in Bulgaria should be aware that the French and Dutch ’no’ votes in the recent referenda on the EU constitution could have affected the country’s chances of joining the EU as planned. "If Bulgaria does not join the EU, prices are unlikely to continue to rise at the current rate," says Law.

He also warns against investing in Florida. "I would recommend caution in America. The property boom was based on extremely low interest rates, which are now rising in an effort to turn the heat down on the housing market. Buyers are realising a period of instability is pending, which will trickle down to affect the resale market in the States fairly rapidly."

Law says that investors who would rather keep their money closer to home would do well to consider a student property, with yields of 8 percent. This is strong in relation to the rest of the UK buy-to-let market, which currently stands at about 5.8 percent.

"University towns have enjoyed big rent increases over the past five years, and with Government incentives to boost student numbers to 50 percent of all 18-30s by 2010, this growth rate looks set to continue," says Law.

However, all buy-to-let landlords in the UK should be aware of the Homes in Multiple Occupation requirements which come into force in October of this year. This affects all rentals where two or more unrelated people share accommodation and the legislation could affect capital values of buy-to-let properties.