U.K. Asking Prices Hit Record in the Face of Raging Demand

Good news for home sellers across the U.K. in May spelled bad news for buyers as property price gains reached double digits, according to a report Tuesday from Nationwide.

Asking prices swelled 10.9% last month compared to May 2020, the highest level recorded since August 2014. The gains pushed up the average asking price in the country to a record £242,832 (A$442,819), which is £23,930 higher than the same time last year, the bank and mortgage provider said.

The U.K.’s property market spent half of last May shuttered following the arrival of the coronavirus pandemic. In England—Scotland, Wales and Northern Ireland reopened on separate timetables—restrictions on the industry were eased in mid-May, and allowed activity to resume in accordance with government-mandated guidelines.

On a monthly basis, prices rose by 1.8% in May from April, slightly less than the 2.3% jump recorded between March and April, according to Nationwide.

“In the same way as other sectors of the economy, house prices have been driven higher by a supply squeeze as the U.K. comes out of the pandemic,” Tom Bill, head of U.K. residential research at Knight Frank, said in a statement on the report’s findings.

“Add in a stamp duty holiday and the fact pent-up demand has been building for years against the backdrop of Brexit, and the result is a burst of house price inflation,” he continued. “More supply is starting to come online, which will redress the balance. We therefore expect U.K. house price growth will slow down after the summer, declining to 5% by the end of 2021.”

Build-to-rent (BTR) residential property has emerged as one of the key sectors of interest among institutional and private high-net-worth investors across the Asia-Pacific region, according to a new report from CBRE. In a survey of 500 investors, BTR recorded the strongest uptick in interest, particularly among investors targeting value-added strategies to achieve double-digit returns.

CBRE said the residential investment sector is set to attract more capital this year, with investors in Japan, Australia and mainland China the primary markets of focus for BTR development. BTR is different from regular apartment developments because the developer or investor–owner retains the entire building for long-term rental income. Knight Frank forecasts that by 2030, about 55,000 dedicated BTR apartments will have been completed in Australia.

Knight Frank says BTR is a proven model in overseas markets and Australia is now following suit.

“Investors are gravitating toward the residential sector because of the perception that it offers the ability to adjust rental income streams more quickly than other sectors in response to high inflation,” Knight Frank explained in a BTR report published in September 2023.

The report shows Melbourne has the most BTR apartments under construction, followed by Sydney. Most of them are one and two-bedroom apartments. The BTR sector is also growing in Canberra and Perth where land costs less and apartment rental yields are among the highest in the country at 5.1 percent and 6.1 percent, respectively, according to the latest CoreLogic data.

In BTR developments, there is typically a strong lifestyle emphasis to encourage renters to stay as long as possible. Developments often have proactive maintenance programs, concierges, add-on cleaning services for tenants, and amenities such as a gym, pool, yoga room, cinema, communal working spaces and outdoor barbecue and dining areas.

Some blocks allow tenants to switch apartments as their space needs change, many are pet-friendly and some even run social events for residents. However, such amenities and services can result in BTR properties being expensive to rent. Some developers and investors have been given subsidies to reserve a portion of BTR apartments as ‘affordable homes’ for local essential services workers.

Ray White chief economist Nerida Conisbee says Australian BTR is a long way behind the United States, where five percent of the country’s rental supply is owned by large companies. She says BTR is Australia’s “best bet” to raise rental supply amid today’s chronic shortage that has seen vacancy rates drop below 1% nationwide and rents skyrocket 40% over the past four years.

Nerida Conisbee says the BTR market is Australia’s ‘best bet’ for addressing the housing crisis.

Ms Conisbee says 84 percent of Australian rental homes are owned by private landlords, typically mum and dad investors, and nine percent are owned by governments. “With Australia currently in the midst of a rental crisis, the question of who provides rental properties needs to be considered,” Ms Conisbee said. “We have relied heavily on private landlords for almost all our rental properties but we may not be able to so readily in the future.” She points out that large companies can access and manage debt more easily than private landlords when interest rates are high.

The CBRE report shows that Asia-Pacific investors are also interested in other types of residential properties. These include student accommodation, particularly in high migration markets like Australia, and retirement communities in markets with ageing populations, such as Japan and Korea. Most Asia Pacific investors said they intended to increase or keep their real estate allocations the same this year, with more than 50 percent of Australian respondents intending to invest more.

U.K. Asking Prices Hit Record in the Face of Raging Demand

Double-digit annual increases left the average asking price at £242,832 in May.

Savvy high net worth players from Australia and Asia are getting on board as the residential landscape shifts