What are the 10 key property predictions for 2019?
We have summarised a variety of key trends for the private rental property sector for 2019; based on key documentation sourced from 2017, and current detail of what occurred during 2018, building some evidence-based assumptions on those two key years in property. To jump straight to the point here is what to watch out for in the year ahead:
Over the next 12 months, the Royal Institution for Chartered Surveyors (RICs) predicts rents will rise by 2%; mainly due to a shortfall of supply in the market of rental housing, coupled with a growing demand by tenants.
The availability of rental housing is predicted to decline further as private landlords look to exit the market following recent tax and stamp duty changes for post Brexit Britain.
The property shortfall will result in rents increasing; therefore putting more pressure onto the Government to provide social housing and the build to rent programme.
2018 saw significant changes to the way councils can take on new powers to enforce regulations direct to landlords without the need for costly court negotiations. This has resulted in fines for landlords and estate agents being struck off from trading for periods of time – all for the better protection of tenants and ensuring rental properties are fit for purpose and managed according to UK regulations.
In 2019 we expect to see a rise in working groups such as Regulation of Property Agents (RoPA). Lord Best reports from ROPA to the House of Commons and we expect to see more of these liaisons increase during 2019 as a fundamental way to improve communications between the regulation required and the practices needing updates.
This will no doubt create a more level playing field for all agents and weed out those with poor practices. However, the impact on the smaller agents will be greater, as the compliance burden grows. Their ability to adapt to the regulations and the expenses incurred means we expect many to liquidate or be swallowed up by the larger agents. Overall more consolidation of a currently very fragmented industry, however the benefits to the industry and for tenants and property management will be significant.
There’s been wider adoption of PropTech in the market since 2017; all offering various services from tenant and landlord reference schemes, easier deposit fund schemes and property management and property search solutions.
The database of rogue landlords and property agents under the Housing and Planning Act 2016 aims to crack down on the small number of rogue landlords who‘knowingly flout their legal obligations and rent out accommodation which is substandard, frequently to vulnerable tenants. The government is determined to crack down on these landlords and disrupt their business model’.
This database of convicted landlords is currently only accessible to councils and requires local authorities to list banned landlords. It is limited on the data it contains at present, and it is not yet open to the public. We expect both these areas to change during 2019 in the run up to Sadiq Khan’s 2020 re-election campaign.
The Homes for Londoners portal was launched in 2018 to help prospective tenants and buyers search for affordable housing. This includes rental property and shared ownership schemes; clearly showing availability and the minimum ownership required on each property. It’s free to register and as at January 2019, it has over 4000 properties listed for sale, over 90 housing providers and developers registered and over 2000 eligible tenants/investors searching. London is the first to offer this service; a collaboration between the GLA, Full Comms and Censeo Financial, with the property search powered by Property Booking.
This ensures prospective tenants can, for the first time, search and review properties that are affordable in an area they call home with intent to purchase.
The relevancy and accuracy of the properties in such portals depends on factors such as the registration of tenants, the knowledge in UK areas that such portals exist and the registration of property developers and property owners. It will therefore require marketing investment to help drive registrations.
“During 2019 we expect to see more and more councils, agents and landlords implement more compliance and regulation to the rental property management for the benefit of a safer property management for their tenants. We now have the technology to make this happen, it just needs greater adoption and broader acceptance. This will help reduce the risk for all parties and ensure compliance and better accomodation for previously vulnerable tenants” says Orla Shields, CEO of Kamma (formerly GetRentr).
At a time of higher stamp duty cost and lower property price growth, hybrid agents like Purple Bricks and Emoov help to make property sales more affordable. Although Emoov is the less successful of the two examples listed since it went into administration, it has helped nudge the market onto a new direction allowing purchasers to directly contact sellers for a negotiated sale of property; creating a change of mindset towards selling properties.
The Guardian predicts in excess of 7000 traditional estate agents are at risk and this is recognition of the fact that digital transformation has not yet reached the diverse needs of the estate agent industry – their operating practices are relatively unchanged over the decades and there is a growing need for them to update and adapt to the modern purchaser and tenant needs.
There is no doubt that property is a huge investment and along with that comes the need for greater human interaction across a variety of diverse expertise; from finance, to agent, negotiators, sales progression teams and also solicitors – even to council if planning is part of the discussions. Then there is also the personal dynamic of family and friends. All this creates an interesting dynamic, unlike many other markets. We do not see that changing in 2019, despite a need for more digital. For more detail, read our guest blog with HM Land Registry on Digital Transformation.
2018 saw the announcement of new rules to ban inconsistent and unexplained tenant letting fees and high deposits by agents. It has been confirmed that this will take effect from June 1st 2019 with Royal Assent agreed in February 2019.
Some fees tenants are expected to pay depend on the agent they use, and the circumstances forming the terms of the tenancy between the tenant, agent and landlord – such as allowing pets, various admin fees and other charges. The deposit is now also set to a 6-week fee, whereas previously it could be in excess of 2 month’s rent, making many properties out of reach. Recent YouGov research by City Hall, released to the Guardian, suggests that two-thirds of the 2.4 million renters in London – more than a quarter of the city – are strongly in favour of pricing controls.Private rental controls will come into force, especially in London as part of Sadiq Khan’s re-election campaign tackling the london housing crisis leading up to the 2020 poll.
It is no surprise that with the onset of the tenancy fee ban in June 2019, letting agents will be hit hard. Administrative and legal process for property purchases, have all legalities and administrative tasks (searches, references, legal) outsourced to solicitors. However, with rental properties, this resides with the letting agent on behalf of the tenant so the administrative and legal burden is there, but the ability to charge a fee for this process is not.
Kamma secures revenue streams for agents on their property portfolios. Landlords value agents that are on top of regulation and this is one of the key reasons they hire an agent. Kamma enables agents to keep on top of property licences (mandatory, selective and additional) to individual landlord properties. Knowing the licenses that apply, the timescales and managing the full application process would be peace of mind for any landlord – and ensure protection from fines.
Not only does this offer a differentiated service, it is also a great retention tool and revenue stream for the agent.
The DCLG Build to Rent Consultation proved that there would be many benefits to the private rental sector of having a clearer definition of affordable private rent, and that this would help to prevent difficulties from arising.
In 2018, the Government set new parameters of 20% of housing to be affordable, and that 3 year letting terms should be made available. However, looking at the consultation document, almost a third of attendees state that this was too onerous, leading to a conclusion that these regulations could be further tightened into 2019. Over 53% of local authorities felt that this was insufficient.
Following the DCLG consultation on build to rent, there is likely to be an increase 3 year tenancy agreements for private rent across the UK. This is due to two key areas:
This will also have great benefits for estate agents with the impending tenancy fee ban; less administration is required if the tenancy is 3 years or longer, and as such impacts on revenue would lessen than if focusing on 12 – 18 month tenancy agreements, for example.
In 2017 there was a consultation held by the Department for Communities and Local Government (DCLG) which discussed affordable private rent (a term relating to affordable housing, provided within a build to rent scheme making rent at least 20% lower than the local market rate).
Some of this consultation is still in progress however the consultation highlights major steps forward in the private housing sector with over 220 attendees together ranging from; landlords, residents, tenants, agents, developers, trades, lenders, local authorities. All coming together to discuss the same issue(s) at the same time and voting or agreeing on next steps forward. For example, build to rent will likely be included in the National Planning Policy Framework, as supported by 82% of investors and developers during that consultation.
We predict more of these consultations for 2019, along with more transparent data sets being made available to the public. More local authority and council led workshops, to help liaisons between landlords and the councils with ongoing regulation updates.
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