KUALA LUMPUR (April 17): Since 2005, the number of households renting from private landlords in London has increased by 75% from 467,000 to 819,000, according to CBRE’s Residential London report. In addition, 247,000 households in 2014 rent privately.

“This huge level of growth is due to an increase in population, lack of affordable housing for first-time buyers and a new generation attracted to the freedom of renting. Buying property has become increasingly difficult for many potential first-time buyers. This is a result of the rising price of houses coupled with difficulties in [obtaining] mortgage finance,” said the report.

“Private renting has not typically been the tenure of choice in this country. However, this is changing and the sector is growing rapidly. An additional 1.3 million households [nationwide] have found accommodation in this sector in the last six years alone with 27% of this increase in London.”

CBRE said new renters are seeking better quality accommodation —  they are willing to pay a rental premium of around 40% for better modern stocks compared with second-hand units.

“For instance, Stratford’s new build flats achieve an average rent of £400 (RM2,185) per week which is 34% higher than second-hand rents in the same location of £308 per week. Similarly new build rents in the city fetch £733 per week, around 30% higher than second-hand stocks.

“The rental market is [adjusting to satisfy] the range of needs of renters with premium rents for premium products, reflecting an underlying demand from increasingly affluent renters who expect quality products.” CBRE stated.

London, Kensington and Chelsea had the highest rents followed by those in the City of Westminster and the City of London with all above £3,000 per calendar month. Rental growth across London averaged at 5% last year, followed by Croydon (15%), Greenwich (12%) and Barking & Dagenham (11%). 

In addition, most of the boroughs located in the north-west had rental growth of 5% or less due to shifts in demand with renters seeking better value propositions. Capital values across London as a whole increased by around 11% in 2014. Despite yields having fallen marginally from 5.7% to 5.3%, investors already in the market have seen their investments offset by the corresponding boost to total returns. 

Since 2010, there have been 40 private rental sector schemes across London totalling 3,884 units, with several of the schemes concentrated across the former Olympic Village in Newham.

Fifty-two per cent of units currently under construction are in three boroughs (Tower Hamlets, Southwark and Lewisham) of Central London. Outer boroughs such as Hillingdon, Brent, Harrow and Haringey are also seeing more units under construction as well. There are 15 boroughs with planning permission for large schemes in which seven of the 10 boroughs with the largest pipeline are in outer London boroughs such as Croydon, Hounslow, Waltham Forest, Ealing, Barnet, Sutton and Merton.

This article first appeared in The Edge Financial Daily, on April 17, 2015.

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