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The iceberg that’s waiting for the lettings industry

Posted on 2013-12-17

In this guest news article, property expert, Henry Pryor, casts his thoughts on the private rented sector, and how he sees the industry developing in the future.

A friend once corrected me when she overheard me pontificating on the state of the rentals market…“Rentals is what Hertz does Henry”, she said…“we’re in the lettings business”. One more piece of evidence that just because you say something doesn’t make it true…

Today it’s hard to find someone who is anything other than positive about the lettings market, even if most would agree there is quite a lot that could be done to improve the reputation of the business in the eyes of the public.

Demand in most parts of the country is up and supply of stock to let is tight enough to keep rents up but not too tight to force letting agents out of business. Technology is also changing the ways many do business with the arrival of digital and online lettings software.

"Technology is also changing the

ways many do business"

But it’s not technology that I believe is the biggest threat to the business. It’s not competition that is going to make life tough. It won’t even be regulation that strangles the market - although we can probably rely on politicians to have a damn good try. No, it’s the melodic tick of the market that I fear most. The cycle of good times and bad that I think people should be planning for.

I speak to agents and to landlords up and down the land. Most are in good humour, few are overly concerned about the future. Many landlords take the view that the yield is there to fund the cost of the property, to take care of the interest on the mortgage, to deal with dilapidations and pay towards the costs of letting and managing the property.

All too many take the view that capital appreciation is the goal and that increased values are what they seek. This is the reason that many are prepared to accept woefully low returns, especially in the hotter markets in student towns and cities and of course within London.

So why am I worried? I’ve seen what adverse markets are like and what happens to those caught up in them. They’re scary and often nasty experiences. What happens is that as the flood of rental property grows, eventually you run out of tenants able to pay the rent you ask.

Then you find some landlords admitting to voids, to significant periods without a tenant. If you’ve not had any rent for six months you might think of selling. And at that point you discover because there is no rent the value has crashed, and before you know it, there is stagnation - the worst of all worlds for agents.

“Some parts of the country are still looking forward

to seeing the market start to bubble”

Some parts of the country are still looking forward to seeing the market start to bubble so they have some time to wait before the change might hit them. But in London, where the ripple often starts, there are signs I recognise from the last time the market froze. Hundreds of flats coming to the market chasing tenants with finite budgets. What do you do to get your property noticed if there are ten other identical properties many asking less than you?

Letting agents and landlords might do well to remember that in fact the art of investing - in property or in anything else - is to concentrate on the yield. Capital appreciation is a bonus and should be treated as such.

About well as a buying agent, Henry Pryor is also a market and housing commentator – often described as the BBC’s ‘favourite property expert’

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