UK residential property leads returns, says IPD

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Better returns were generated last year from UK commercially held residential property compared to European or North American markets, property index provider IPD has said.

The conclusion is based on measuring 10 private rental markets globally worth over £100bn against the IPD Multinational Property index.

According to this method, residential returns in the UK were 14.8% last year, compared to 9.7% in the US, 8.3% in Germany, 0.6% in the Netherlands, and 7.4% in the Nordic markets.

Over the past five years, UK residential property has returned 11.2% annually on average. IPD said that strong returns amid a cyclical downturn had made residential returns better than commercial ones: “even during a downturn, people still need houses”.

The UK market of institutionally owned rental market is relatively small, IPD added, but it is growing because of the rising number of people renting amid an ongoing housing shortage, which are factors boosting returns. The number of households renting in the UK doubled to over four million in the past decade, according to government figures cited by IPD, with private renting overtaking social housing as the second largest source of housing by volume.

International investors have spotted an opportunity to create returns, amid government policy that has resulted in changes to capital gains tax rules, which now exempt institutions when they acquire portfolios of residential property to rent.

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