What Property Types are Best in an Emerging Location?
It’s no secret that Generation Rent is now more prevalent than ever before, with rising prices making the property ladder less accessible for a lot of first-time buyers. Around 67% of professional sharers are still renting property, while 50% of couples across the UK remain in the rental sector.
With more people living in rented property and staying in the market for longer, it makes for an opportune time to invest in Buy-to-Let property. However, knowing the value of this asset is one thing but knowing where to invest and in which property type is another – a process that can be overwhelming for some.
For example, what is an emerging location? Typically defined as a place with great potential – from regeneration schemes to increasing employment and academic opportunities – the long-term potential returns of these locations is exceptional.
What Property Types Suit a Long-Term Investment?
Within the UK market there’s a variety of different property types to consider, from houses to apartments, with one to suit every strategy and investment goal. The significant role that property types play within an individual investment often puts additional pressure on prospective investors but knowing your options and financial targets can streamline this process.
Houses are often a popular choice amongst Buy-to-Let investors due to their popularity amongst both families and students. In comparison to alternative property types, houses are typically bigger, with more space and the opportunity to have more bedrooms. As a result, landlords can have the choice of making their Buy-to-Let property a HMO, student house, or a Buy-to-Let targeted at families.
On the other hand, apartments allow for greater flexibility. This property type can serve a range of demographics, including young families, couples and affluent professionals. The accessibility of this property type is at the root of this demand, with apartments typically being more centrally located than houses, especially within city centres. Not only does this offer greater access to amenities and cultural hotspots, but also provides greater employment opportunities.
As Generation Rent continues to spread across a wider demographic of tenants, the versatility of apartments, arguably, makes for a more suitable long-term investment asset. City centre locations typically have a lot more to offer than suburban spots, making apartments a common choice for the majority of UK tenants in the long-run.
What’s the Best Property Type for Rental Yields?
Rental yields are a key consideration for prospective investors, with this metric comparing the monthly rental income investors stand to make against the overall value of the property. While rental yield is influenced by a combination of factors, location plays a major part in determining this figure.
Emerging locations are often those that are in their infancy, or are in the early stages of extensive regeneration schemes. As a result, property prices are usually more affordable, but with greater potential for bigger rents in the years to come.
Bracknell is a prime example of this, with the town in the midst of its biggest transformation to date. The Bracknell Vision spans the next 12 years, and will eventually deliver a hub of businesses, amenities and cultural spaces catered to the modern tenant. While the average rental yield for a one bed house currently sits at 3.15%, one bed apartments are yielding up to 4.75%, with bigger increases on the horizon.
Driven by the town’s growing demographic of young professionals, this continued demand for apartments will see competitive rental yields remain across the town. Despite already surpassing the UK average of 3.53%, the town’s ongoing regeneration is expected to push rents by around 8% within the next four years.
What’s the Best Property Type for Capital Growth?
Along with rental yields, capital growth is another income stream that investors need to consider. Also known as capital appreciation, this is the increase in property value that investors hope to see over time. But with the immediacy and reinvestment opportunities of rental income, capital growth is often a second thought for the majority of Buy-to-Let investors.
Much like rental yields, capital growth fluctuates with different property types. This is particularly true for properties in emerging areas, where the addition of amenities, cultural hotspots and employment opportunities propel the local property market, and in turn, push property prices. For example, property prices across Bracknell are expected to see a 17.5% increase within the next four years, and with the current affordability of the market, this capital growth will be even greater.
But what property types should investors consider?
According to Zoopla, in the short-term (five years), the average apartment experiences around 28% growth, whereas on a long-term basis (20 years), apartment prices have the potential to increase by 256%, surpassing detached houses at 245%.
While we already knew that property tends to be a more lucrative investment on a long-term basis, these disparities highlight the increased opportunities for capital growth that come with apartments. Paired with their competitive rental yields and lower price points, this property type, situated in emerging areas, gives investors a potentially lucrative asset – on both a short- and long-term basis.