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Tuesday, November 25, 2008

Rents falling - particularly on family housing

A recent article published on reports that rents are copying house prices and falling, thanks to an oversupply of unsold homes.

It’s good news for tenants and bad news for landlords: according to the latest survey from the Royal Institution of Chartered Surveyors (RICS), residential rents fell dramatically in the third quarter of this year.

The record fall comes thanks to the lettings market being “flooded” by unsold properties being put up to let. Of course, this is basic economics: when supply is high but demand is weak, prices go but one way -- downwards.

A flooded market

The proportion of surveyors reporting new lettings of flats and homes is at an all-time high. Indeed, 50% more surveyors reported a rise than a fall in new instructions to let flats. For houses, this figure stands at 68%, which suggests that thousands of unsold family homes are finding their way onto the rental market. This trend could hurt existing landlords, as reluctant amateur landlords undercut professionals and long-term investors.

Rents go down

Between April and June this year, RICS reported that 31% more surveyors reported rises rather than falls in rents. However, this figure plunged in the following quarter to minus 12%, which is the lowest figure ever recorded by RICS.

In effect, this means that far more surveyors reported falling rents than rises. And if homeowners continue to hang on to their properties and let out them out instead of selling them – in a bid to ride out the housing downturn - then this figure is likely to worsen.

In London, the net balance* of surveyors reporting rises or falls in rents decreased from a stable 0% in Q2 to minus 53% in Q3. For London flats, the net balance fell from 5% to minus 33%. Worst hit was the Southeast, with the net balance for houses plummeting from 53% to minus 33%. Ouch!

This news tallies with my own personal experience. Recently, I made an offer to rent a property in a city in the Southeast. The previous tenants had lived there for two years, paying £1,800 a month. I offered the landlord £1,650 a month, which he promptly accepted -- saving me £1,800 a year.

Message for landlords

The message for landlords is that if they have good tenants paying a good rent - try and keep them. London landlords in particular have experienced a recent golden era of rising property prices and rising rents meaning that they won either way. The message is clear landlords need to work hard to keep hold of what they have and this includes their tenants!

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