IFAs are advising their clients away from residential property, encouraging them to invest in commercial property instead, according to a recent survey.
Carried out by the online property data source, Reita, the survey questioned 270 IFAs in the run up to the general election and found that only 39% of the those questioned think investors should consider residential property, compared with just over half (51%) in January.
With property prices on the rise, yet mortgage lending at the lowest in a decade, (according to recent figures published by CML), the data will come as a blow to those hoping to see increased movement in the residential market.
Nikki Cann, associate director of the National Association of Commercial Finance Brokers (NACFB), said: “There are probably several factors driving this trend. Recent ARLA figures have shown that the average rental yield on a residential investment is 5.1%, whereas according to Capital Economics, the average yield for commercial property is 6.7% – and in addition, ARLA suggests the proposed changes to Capital Gains Tax could impact on an already beleaguered residential buy-to-let market.”
However, she also warned that a sudden influx in commercial property investment could artificially inflate prices and bring about another slump.
“It’s important to bear in mind that this recovery is still fragile. There is no doubt improvement but it’s very early days. One swallow does not a summer make,” she said.
NACFB CEO, Adam Tyler, also warned of the imbalance of growth between the South East and the rest of the country, which could cause some ‘overheating’, and added that novice investors should exercise caution.
“Commercial investment is still one for those in the know and not for those unsophisticated in this market,” he said.
Dave Butler, director of corporate affairs at Grainger plc, suggested the decreased confidence in the residential housing market could be attributed to the uncertainty over the economy and doubts over whether recent rises in house prices can be sustained.
“Threats to raise CGT rates may also have raised concerns amongst some residential investors, particularly Buy to Let Landlords, but these may also create some interesting buying opportunities for those in the residential market for the long term,” he added.
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