PHILIP’S BLOG 19/01/2015



London, MJ Direct, Birmingham’s City Centre flatsA recent planning application in the Jewellery Quarter for a large number of one & two bedroom apartments has highlighted the debate regarding who the flats are to be aimed at when they come forward to sell. Are they for investors or owner occupiers. Is there in fact a difference? Does it make any difference to the investment potential?

The imminent change in the pension regulations later this Spring will bring more Buy to Let investors into Birmingham as they individually unlock their often poorly performing investments, invariably in funds and managed by institutions & reinvest them themselves. Whilst classic cars and round the world trips are set to take off the more sound are seriously looking at future income and underlying capital growth. The key provincial UK City’s like Birmingham are set to become the recipients of an inflow of funds. The statistics highlighting on going high levels of demand, a shortage of supply plus a track record of increasing rental income make the proposition undeniably attractive.

Some property developers have witnessed this and are building or have plans afoot , as we saw some ten years ago, to design apartments which will appeal in price & likely rental return to the widest audience of investors rather than the widest audience of likely tenants or indeed owner occupiers. The apartments fit a model based around their likely income. Typical one bedroom flats here in the City Centre rent at £650-£700 pm and typical two bedrooms at £750-£900pm. To offer someone a 6-7% return the capital price needs to be £120-140k for one bed and two beds £150-185k. When you factor in average construction costs of £130-£150 per ft, land costs & a 20% or so return it is very easy to see why smaller than average 450ft one bedroom & 675-700ft two bedroom flats are being planned again.

For investors especially when first & second year rental returns are guaranteed it is a very attractive opportunity. However a note of caution. In my experience blocks with a large number of investors can suffer from wider voids between tenancies as investors have to compete against each other for tenants once the rental guarantee has lapsed. The cheapest & upper floors invariably go first. Secondly the blocks suffer from a higher wear & tear as tenants very regularly move in & out. Thirdly the often lack of a resident group regularly liaising with the managing agent means minor repairs often go unreported until the issue becomes larger and lastly capital growth suffers as this is invariably built from resident owner occupiers wanting to live somewhere & prepared to cast the rental return aside when buying. Blocks which offer a wider range of different sizes & styles invariably win out long term.

For tenants these buildings offer tighter living conditions but are often well specified . The rentals will reflect the market and they’ll inevitably be choice when you are looking. The buildings will often be conveniently located but do expect the lifts being taken occasionally by new neighbours moving in & out!

When buying do ask us or indeed the concierge how many flats are let out. It may affect the type of future return.

Philip Jackson