Investing in Property - UK - July 2008

ISSUES IN THE MARKET
Main findings of the research
Abbreviations
INSIGHTS AND OPPORTUNITIES
Consumer appetite for property may be starting to wane…
…but there is still strong latent demand for buy-to-let investments
Falling property prices could stimulate investment in property
A significant minority feel property can provide for their retirement
MARKET IN BRIEF
Property is the household sector’s main asset class
A booming housing market has encouraged property investment
Tenant demand is likely to increase in the coming years
The buy-to-let sector has seen spectacular growth
The property-based unit trust market has also grown significantly
Trade perspective: The rationale behind buy-to-let remains compelling
Mintel’s research findings: Investment portfolio
Mintel’s research findings: Property as investment
Mintel’s research findings: Future intentions and expectations
Mintel’s research findings: Impact of the credit crunch
Mintel’s research findings: Attitudes towards property investment
FAST FORWARD TRENDS
 TREND: HOME AS PENSION
The rise of the property investor
Capturing the imagination
Property provides assurance?
 TREND: UNIVERSAL UNCERTAINTY
Global financial markets
Headlines undermine confidence
Changing attitudes and their implications
ASSET OWNERSHIP
Key points
Owner-occupation has risen sharply in the last three decades
Figure 1: Proportion of households in England and Wales, by tenure, 1981-2007
Property is the household sector’s main asset class…
Figure 2: Composition of net wealth of the household sector, UK, 1987-2007
…but most people’s homes are not merely an investment
STRENGTHS AND WEAKNESSES IN THE MARKET
Strengths
Weaknesses
COMPETITIVE CONTEXT
Key points
Property is a unique proposition
Pensions represent main competition
Figure 3: Individual pension sales, 2001-07
Cash ISA sales soar in 2007/08, but stocks and shares ISAs stagnate
Figure 4: Amounts subscribed to ISA accounts, by cash and stocks and shares components, 1999/2000 to 2007/08
Collective investment sales suffer
Figure 5: Net retail sales of UK domiciled unit trusts/OEICs, 1998-2008
TRADE PERSPECTIVE
Short-term pain; long-term gain in the property market
Experienced landlords are widely expected to hold their nerve
The rationale behind buy-to-let remains compelling
Funding restrictions continue to constrain the buy-to-let market
Lower property prices will provide opportunities for portfolio landlords
THE PROPERTY MARKET
Key points
The property market has enjoyed a decade-long boom
Figure 6: Property transactions in England and Wales, 1980-2007
House prices have more than tripled in the last 12 years…
Figure 7: UK standardised average house prices (seasonally adjusted) 1995-2008
…although activity in the housing market has now started to wane
The length and severity of the downturn is now the key issue
Property investors will need to adapt to this new environment
BROADER MARKET ENVIRONMENT
Key points
The long-term outlook remains positive for property investors
A rise in the number of households will boost housing demand
Figure 8: Total number and average size of households in the UK, 1991-2013
The growth in one-person households is particularly positive
Rising student population is also increasing tenant demand
Figure 9: Number of Higher Education students in the UK, by level of study, 1980/81-2005/06
Rising immigration has provided a boost to the rental sector
Changing lifestyles are also influencing housing demand
The number of housing starts is falling sharply
Figure 10: House building: permanent dwellings started in the UK, by region, 2005/06-2007/08*
Housing supply is failing to meet the increase in demand
INTERNAL MARKET ENVIRONMENT
Key points
The credit crunch is still impacting the mortgage market
Liquidity shortages continue to plague the mortgage market
The future path of interest rates will prove to be crucial
Figure 11: Bank of England base rate, end of quarter, 1972-2008
Returns on commercial property have slumped
Average rental yields languish at relatively low levels…
Figure 12: Average rental yields for England and Wales, monthly data, 2002-08
…but rental yields are now starting to rise
Survey evidence suggests landlords’ confidence remains high
THE BUY-TO-LET MARKET
Key points
Specialist subsidiary brands dominate the buy-to-let market
Figure 13: Leading providers in the buy-to-let mortgage market, 2007
Buy-to-let loans outstanding totalled £120 billion at end of 2007
Figure 14: Buy-to-let mortgages outstanding, 2000-07
The buy-to-let sector accounted for 12% of advances in 2007
Figure 15: Buy-to-let gross advances, 2000-07
There is evidence that buy-to-let activity has started to wane
Figure 16: Buy-to-let mortgage market, quarterly data, 2007 and 2008
The level of arrears and possessions has started to rise
Figure 17: Buy-to-let mortgages three ore more months in arrears, 2007 and 2008
INDIRECT PROPERTY INVESTMENT
Key points
Property investors can utilise a number of investment vehicles
The property-based unit trust market has grown significantly
A wide array of providers promote a range of property funds
Property schemes accounted for a fifth of unit trust sales in 2007…
…although performance has dipped in the last nine months
The immediate outlook does not look particularly promising
REITs provide a new opportunity for indirect investment
There are strict limits on REIT eligibility
Total market capitalisation of UK-based REITs is £21 billion
Figure 18: UK-based REITs, July 2008
It was hoped that REITs would help stimulate investment…
…but only 1% of consumers currently own a REIT
Increased IFA awareness offers some hope for the future
THE CONSUMER – INVESTMENT PORTFOLIO
Key points
Survey background
Property investment is still a relatively niche sector
Figure 19: Investment ownership, May 2008
One in seven ABs hold property-based investments
Figure 20: Investment ownership, by gender, age, socio-economic group and age/socio-economic group, May 2008
High earners are most likely to invest in property
Figure 21: Investment ownership, by lifestage, Mintel’s Special Groups, working status, income and TV region, May 2008
Almost one in six M&S customers own property investments
Figure 22: Investment ownership, by technology users, commercial TV viewing, newspaper readership and supermarket used, May 2008
High earners, ABs and 45-54s are prime buy-to-let investors
Figure 23: Summary of property investor profiles, May 2008
THE CONSUMER – PROPERTY AS INVESTMENT
Key points
Consumers tend to favour the risk-averse savings route
Figure 24: Preferred method of saving for the future, by gender, May 2008
Men less risk-averse?
The 25-34s are more likely to consider property investment
Figure 25: Preferred method of saving for the future, by age, May 2008
A fifth of C2s feel buy-to-let is a particularly good way to save
Figure 26: Preferred method of saving for the future, by socio-economic group, May 2008
Consumer enthusiasm for property appears to have waned
Figure 27: Preferred method of saving for the future, 2007 and 2008
Four in ten current property investors favour buy-to-let
Figure 28: Preferred method of saving for the future, by investment ownership groups, May 2008
THE CONSUMER – FUTURE INTENTIONS AND EXPECTATIONS
Key points
One in six consumers might buy an investment property
Figure 29: ‘Seriously considering buying an investment property in next five years’, May 2008
The 18-24s are most inclined to purchase an investment property
Figure 30: ‘Seriously considering buying an investment property in next five years’, by gender, age, socio-economic group and age/socio-economic group, May 2008
A third of the ABC1 pre-/no family group might buy a property
Figure 31: ‘Seriously considering buying an investment property in next five years’, by lifestage, Mintel’s Special Groups, working status, income and TV region, May 2008
Over a third of property investors want to expand their portfolio
Figure 32: ‘Seriously considering buying an investment property in next five years’, by investment ownership groups, May 2008
Fewer consumers are considering the purchase of a property
Figure 33: ‘Seriously considering buying an investment property in next five years’, 2007 and 2008
A fifth of consumers feel it is time to exit the property market
Figure 34: ‘Now is a good time to get out of the property market’, May 2008
More than a quarter of C2DE 18-34s are property pessimists
Figure 35: ‘Now is a good time to get out of the property market’, by gender, age, socio-economic group and age/socio-economic group, May 2008
High earners are most optimistic about the property market
Figure 36: ‘Now is a good time to get out of the property market’, by lifestage, Mintel’s Special Groups, working status, income and TV region, May 2008
A fifth of property investors feel it is a good time to exit the market
Figure 37: ‘Now is a good time to get out of the property market’, by investment ownership groups, May 2008
Almost half of all consumers expect property prices to fall
Figure 38: Property price expectations, May 2008
Just under six in ten ABs think property prices will fall
Figure 39: Property price expectations, by gender, age, socio-economic group and age/socio-economic group, May 2008
Consumers are far more pessimistic now than a year ago
Figure 40: Property price expectations, 2007 and 2008
Half of all property investors expect house prices to fall
Figure 41: Property price expectations, by investment ownership groups, May 2008
Falling property prices will not deter all potential investors
Figure 42: Property price expectations, by agreement with ‘Seriously considering buying an investment property in next five years’, May 2008
THE CONSUMER – IMPACT OF THE CREDIT CRUNCH
Key points
Most property investors have retained faith in the market
Figure 43: ‘Only an idiot would invest in property at the moment’, May 2008
Relatively few ABC1 35-54s doubt the wisdom of property investment
Figure 44: ‘Only an idiot would invest in property at the moment’, by gender, age, socio-economic group and age/socio-economic group, May 2008
A third of low earners question the sanity of property investors
Figure 45: ‘Only an idiot would invest in property at the moment’, by lifestage, working status, income and TV region, May 2008
Lower property prices would tempt some buy-to-let investors
Figure 46: ‘Would be tempted to invest in buy-to-let if property prices fell significantly’, May 2008
The 18-34s are most likely to be tempted by falling prices
Figure 47: ‘Would be tempted to invest in buy-to-let if property prices fell significantly’, by gender, age, socio-economic group and age/socio-economic group, May 2008
Lower property prices would tempt almost a third of Londoners
Figure 48: ‘Would be tempted to invest in buy-to-let if property prices fell significantly’, by lifestage, working status, income and TV region, May 2008
Half of all consumers feel strong tenant demand will boost buy-to-let
Figure 49: ‘With more people looking to rent, it's a good time for buy-to-let properties’, May 2008
Six in ten 18-34s feel rental demand will support buy-to-let
Figure 50: ‘With more people looking to rent, it's a good time for buy-to-let properties’, by gender, age, socio-economic group and age/socio-economic group, May 2008
A high proportion of Scots feel tenant demand will aid buy-to-let
Figure 51: ‘With more people looking to rent, it's a good time for buy-to-let properties’, by lifestage, working status, income and TV region, May 2008
THE CONSUMER – ATTITUDES TOWARDS PROPERTY INVESTMENT
Key points
High house prices remain a concern for over a third of consumers
Figure 52: Attitudes towards property investment, 2007 and 2008
Fewer consumers feel property is the key to retirement planning
One in ten people feel renting is better value than buying
A third of men feel their house is just a home
Figure 53: Attitudes towards property investment, by gender, May 2008
More than a third of 25-34s worry about mortgage rate rises
Figure 54: Attitudes towards property investment, by age, May 2008
Almost four in ten ABC1s keep an eye on house prices
Figure 55: Preferred method of saving for the future, by socio-economic group, May 2008
Dissecting the sample according to attitudes towards property
Figure 56: Typologies based upon attitudes towards property, by gender, age, socio-economic group, lifestage, Mintel’s Special Groups, income and TV region, May 2008
The Safe as Houses cluster enjoy high property penetration rates
Figure 57: Investment ownership, by property typologies, May 2008
KEY TARGETS AND FUTURE PROSPECTS
Key points
Assessing consumer sentiment
Methodology
Positive sentiment has declined
Figure 58: Range of propensity to invest, May 2008
Property investment is less appealing for the over 55s
Figure 59: Demographic breakdown of target groups, May 2008
Background demographics unfavourable for future growth
Figure 60: Impact of demographic changes on potential consumer base, 2008 and 2013