However, the report, entitled ‘Investment Returns in the Private Rented Housing Sector’ discovered that while total returns could compare favourably with other investments, returns were dependent on the timing of investments in relation to house price cycles and that there is a higher risk and lower liquidity of residential lettings when compared to other investments. And, how well landlords performed was dependent on whether they were corporate or individual landlords.
The research was partly conducted to examine whether a common method of calculating residential returns could be devised. But in the event it was decided that the market is too diverse and several standards would need to be developed to meet this need.
Richard Lambert, director (commercial and residential) at BPF, said: "These findings show that sound business practice pays dividends in the private rented sector. The researchers draw an important distinction between the returns for landlords who are 'rent-setters', looking for a specific return on their capital, and those who are 'rent-takers', following the prevailing market. They reinforce our view that the most effective way to help the sector develop is to treat it as a business and encourage it to behave like one in return.
"It is clear that many investors are attracted by residential property's returns when compared with other investments. But however good returns appear to be, so far they have not reached the level which will attract large-scale institutional investment. This is something which both Government and industry will need to consider further if the sector is to expand as we hope it will."