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Future demand

UK housing supply is still falling short of overall demand by some 100,000 properties per year. Capital prices are currently softened by lending constraints within the owner occupier and buy-to-let markets, with the latter responsible for the provision of nearly 80% of private rented accommodation. However, the rapid growth in rental rates reinforces the demand for housing itself. The team’s view is that, while residential property continues to offer the best ratio of returns to risk, the profile of residential property investment is changing to become more balanced between capital and income returns.

Thanks to continuing structural shifts in UK demographics and changing attitudes to home ownership, a twenty per cent increase in the number of households in the private rented sector (PRS) is predicted by 2016. This follows on from a fifty per cent increase in the five years to 2011 and puts the market value of the PRS at £840 billion, around twenty per cent of the total value of UK housing. These predictions for PRS growth are not just for one or two bed flats.

While demand for rented accommodation has been enhanced in the short term by lack of mortgage availability, the longer-term shifts in sentiment and a more mobile workforce mean that renting is becoming increasingly common among families. This growing demand for accommodation translates into a requirement for £200 billion of investment into properties for rent over the next five years (Savills, Q2 2012). Only £50 billion of this is predicted to come from buy-to-let investors, leaving £150 billion of unmet demand, equal to the current value of all outstanding buy-to-let mortgages.

With this growing demand and a clear financing shortfall, the TM Hearthstone UK Residential Property Fund is well positioned. Our philosophy is that the reliability of income returns will underpin capital prices in our investment properties, providing excellent total returns.

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