For investors here in Northern Ireland, the last 12 months have seen some unpresidented changes to the rental industry. Whether it be from legal reform and changes to tenancy legislation or huge demands and soaring rental prices, 2022 has been a year of higher highs, which is great.. but how did we get here?
A few short weeks ago, data released via propertypal.com in the last quarter, shed some light as to why. By reviewing this data, we can better understand the market position and crucially, begin to make some educated prediuctions for future property investing.
Here’s the current situation,
Following on from the pandemic, economic recession and rises in interest rates to name a few factors, it’s still very clear that demand way outstrips’ supply. In recent months the story has been centered around a huge rental property shortage in the available market, for which there are many attributing factors.
From the data we can now see that the rising costs of living is making it difficult for people to move or have the money to move in general, whether in rental or the sales market. Rising property sale prices have pushed a lot of would-be first time buyers and buyers looking to re-enter the sales market back into rented accomodation. Pressures continue to mount as migration to urban centers for work or to attend university increases and this in-turn has created a huge pool of suitably qualified tenants with nowhere to go. For a tenant right now, competition is extemely fierce to not only find a rental property, but find one that’s affordable as prices are rising with the increased demand for rental property.
We can see that in the last quarter, search traffic is down 24% on last year, likely due to the lack of available offerings in the market overall. Enquiries for properties are up 36% on last year as potential renters bash the phones and clog email enquiry channels of letting agencies that have limited amounts of property available. New inventory to the market is marginally up by 4% on last year, but at this time of year, supply is normally lower than in high season anyway, so this does little to improve the supply issue. The general total inventory level is just 16% higher than where it was last year, which again, when demand sits at an all time high, does very little to alleviate current pressures.
For tenants in the market, these are unfortunately dark times and whilst we at Lettings Company are working closely with all of our landlords to secure great rent increases against current market value, we are also working with our tenants to try and make these increases bareable. In most cases increases are just below the market value, making the squeeze a little looser on our tenants, allowing them to stay in their homes if they wish, whilst still netting a great ROI for our landlord investors.
What does this mean for landlords with available property?
Well, the data seems to suggest that available properties are actually sitting on the market for longer than they were last year, houses by an extra 2 days – an average of 24 days on market and apartments the same, an extra 2 days – an average of 25 days on market. The increased time on the market is likely due to agencies being swamped with so many enquiries that viewings are taking longer to arrange and conduct, multiple applicants for properties require referencing which can take longer and lastly, in Northern Ireland in general, traditional high street agents are still very slow to embrace modern technologies to get things moving faster for their clients.
Seeing an average of 24/ 25 days is needed on market to averagely let agree a property to the best person, highlights just how different Lettings Company is as a forward thinking business. For the past 12 months, our average time from listing to reaching let agreed has been between 4 – 6 days, I can infact only think of one instance in the past 12 months where we have had a property on the market for longer than a week. This is not because we are rushing or not doing our job properly, infact its completely the opposite. Our online booking system available 24 hours a day takes care of tenant viewing arrangements, streamlines this process and eliminates speed issues, it also allows multiple appointments to be booked at any one time and so we arent limited by the amount of phonelines in our office.
Our application and referencing process is extremely robust and also conveniently online, everything is accesible, quick and handled by any smart device, making referencing much more efficient. Quite literally, in the time it takes for an applicant to wait for a bus to file their paper application in with a high street agent, our landlords can have a fully vetted application sitting infront of them. This efficiency in the market is a new level of services, and it infact gives landlords more of the informed decision making power they need. Being atleast 20 days faster on average than other agencies in Northern Ireland, as an agency owner, is impressive but as an investor, this rental service is a game changer.
However, given the changes in the market, the roll of a letting agency or lettings consultant like me has changed somewhat. As pressure increases for everyone to find somewhere to live, tenants are becoming desperate and will go to extreme lengths to secure a property. This is a new playing field for landlords and agents. To do the job properly, agents will now have to comb through the maze of applicants and interested parties to find the best. Thankfully Lettings Company is positioned well to do this using our employed technologies to unearth everything we need to know and only select the genuinely best tenants from a pool of applicants.
What does this crazy growth mean for the future?
We’ve discussed the factors contributing to demand and supply issues and we’ve seen the market response… so what’s going to happen next?
Judging by previous economic recessions, the sales market and current controls over interest rate increases, that we are most likely on the edge of a sales market crash and a revitalising of the rental industry.
It’s already been discussed at the chancellors preliminary budget meetings that the private rented sector may be looking at a government enforced price cap to curb spiraling rises in rent. This ‘could’ be introduced as quickly as early 2023. If this happens, landlord investors would have their returns limited for a period of time while the rental market stabilises.
This could be good news for tenants, however… As interest rates continue to rise, mortgages become higher and the cost of living crisis continues, I suspect this will squeeze alot of landlords with mortgages too much, returns could become much less profitable and lead them to pull out of the rental market altogether.
Then like a ‘domino’ effect, could begin a flood of property into the sales market creating a saturation of choice… With rising costs of mortgages, market uncertainty and lack of first time buyers – the slippery slope to a property price crash could begin. As previously with the last price crash, you’ll start to see more rush sales and negative equity sales popping up everywhere and those who fail to act in time could find themselves in repossession, exactly what happened during the last economic recession.
It sounds like chaos, and it could be… but believe it or not, it’s would be good news for new investors and the rental industry overall. If this series of events where to unfold… we’d be returning to a time in property rentals of low property prices where landlords can pick up investment bargains, fitting perfectly with the ‘buy low’ mentality. Reposession property could also flood the market allowing for greater bargains at lower prices. As a result, vast amounts of rental property could come into the market, a market that is equally flooded with great tenants as a result of the housing crash.
Crucially for investors, the rental market will likely have seen it’s rent prices holding or even increased while sales prices have crashed, creating investing condtions where the returns could be enourmous – a perfect storm for landlord investors.
I believe personally, that this could be whats’ on the horizon, as they say in the money markets, if you have properties right now, HODL – ‘Hold On For Dear Life’. You could try to negotiate the best deal on your mortgage that you can. If your thinking about buying into property investment, waiting a little while longer could serve you well… I predict big changes are coming, I will be watching the market with great interest in the next 12 months.
If you would like to learn more about property investing, are looking to become a landlord, or if you are a landlord looking to source more exciting property investments, why not try the acquisitions service with me personally at Lettings Company. More information can be obtained by contacting me directly, at email@example.com, or visit www.lettings-company.com to learn more about our fantastic range of rental, management, portfolio management and transfer services.
Mitchell Jackson – Director, Lettings Company
(Article serves as an analysis of conditions, predictions are made on a speculatory basis and must not to be viewed as advice or fact.)