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Rics: Rental demand up but yields still low

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by Elaine Frei

Rics: Rental demand up but yields still low

A new survey from the Royal Institution of Chartered Surveyors (Rics) shows that demand for rental properties is up at its highest rate in nine years. The heightened demand is expected to bring relief to landlords who have suffered through several years of little or no growth in rents. According to the new report, 30 percent more chartered surveyors have reported a rise rather than a decline in rentals in February. In some markets at least, this has led to an increase in rents.

This is good news for landlords at a time when residential yields – rent as a proportion of the price of a home – are at record lows. In many cases, these yields are now lower than the cost of borrowing. Additionally, Rics has reported that there is an increased demand for larger residential rentals as household incomes go up, but not enough for families to be able to afford to buy a home.

A separate survey from the Association of Residential Letting Agents (Arla) has found that despite advances, gross yields on rental properties are around 5 percent on average. After management costs, repairs, and periods of vacancy are accounted four, that means that the net yield on a home can be as low as 3.5 percent to 4 percent. Rics’ estimate is even less positive, with gross yields averaging 4.6 percent and nets as low as 3.2 percent.

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News posted: March 2, 2007

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