As the weeks roll by, the first quarter has finished and we are well into April it’s interesting and frustrating to see more and more ‘opportunities’ being sent to us where the yields are too low. Vendors and agents are becoming defensive about our stance but why would someone buy a building or a property where the yields are sub 5% and the price is market value at best. The cost of borrowing would mean you are losing money and you might as well pop your funds in a savings account rather than buy what’s on offer. I appreciate that some vendors are heavily exposed and need to get out as their fixed rate deals come to an end but no one will buy poor yielding stock unless it’s well below market value and there’s perceived instant equity. Yet the emails keep coming and the rejections keep being sent. One this morning was a block in the midlands at £6M for 14 apartments that are producing 4.9% gross yields. Words fail me how this is appealing to anyone. We may be able to make this work at £4.5M at best and that’s probably wishful thinking.
It’s worth adding that a couple of the investment funds we deal with will only consider blocks or houses that are producing 10% upwards. This is a tall order but worth mentioning to show some funds expectations.
When will reality hit some vendors? Will we see an increase in repossessions? Borrowing costs have increased, yields have dropped and property appeal for open market rental investments need to reflect the demand and costs.