Residential property returns last year slowed to half those of commercial property, and 3.7% below the return on equities.
According to the IPD UK residential index, published this week, the overall return for residential property was 9.1% in 2004, the lowest since the index was launched by IPD four years ago. And capital values rose by just 4.9% on average.
The index, which measures the performance of more than 8,000 rented homes across the UK with a total capital value of £1.3bn, showed rent returns of 4%, while gross income yields stood at 5.9%.
However, after allowing for landlord costs and rental voids, this fell to 3.8%, a similar level to the previous year. Landlords lost nearly 35% of the income they could have received on voids and expenses.
Despite this year’s poor residential performance, the asset class still outperformed bonds and, over the four years the index has existed, was the highest performer of all asset classes with annualised total returns of 13.9% pa. Returns on commercial property have averaged 11.3% a year, while bonds and equities saw returns of 4.8% and -2.1% respectively.
On a regional basis, Scotland and the North showed the strongest returns, with 14.1% and 15.6% respectively.
The Midlands and Wales showed slightly lower returns at 12.1% and residential property in the South East showed returns of 7.5%. London saw the lowest returns, with inner London at 6%.
IPD director Kevin Swaddle said: “Looking at the pattern of returns from the regions over the course of the past four years, the evolution of the regional dichotomy is clear, with a wave of growth emanating from London and moving out through the regions to Scotland and the North.
“The amplitude of the wave is not as strong as that of last year, suggesting that the current cycle is drawing to its close,” he added.
