Three and Four Bed Apartments Offer the Return that Investors Require
Darren Shaughnessy, Director Kings Residential, Estate Agents in Manchester and Letting Agents in Manchester writes:
It amazes me that the property developers keep building 1 and 2 bedroomed apartments in the numbers that they are and are ignoring 3 and 4 bedroomed apartments. Whilst there is clearly demand for one-bed apartments in Manchester it is also clear that 2 bed apartments are over-supplied and that the economics for the property investor are not as solid as they used to be. This means that in the longer-term the developers are going to have a harder and harder time selling the properties that they are building.
I think the logic seems to be that families who would need 3 and 4 bedroom apartments are not really buying in city centres so there is no point in building this format of apartment. However, it is fair to say that owner-occupiers form a tiny proportion of city centre property buying anyway so this is not a logical argument to dismiss the idea. The people who are buying these properties are Property Investors and the people living in them are young professional tenants.
I believe that the developers and the town planners have got everything wrong here. The planners have been demanding 2 bedroomed units and the developers keen to placate them have been developing them. However, as the economics of the buy to let invetsment get tougher I think we really need to look at an alternative. Just check out the numbers:
A 700sqft two bed flat for sale in Manchester at £180,000 with a £150,000 mortgage payment in the region of £750 per month on an interest-only mortgage. With a rental income of £750pcm (before letting fees and void periods) this is not too bad as the bulk of the mortgage is paid for by the tenant. However, a 3 bed apartment in Manchester which would require about an additional 200sq ft would cost about an additional 30% but the rent would increase by 50%. Extrapolate these figures to 4 bedrooms and you get to 1100 sqft of apartment costing about 60% more than the 2 bed but achieving double the rental income.
It seems so logical to me that this is the way forward both for the buy to let investors, the developers (keen to maintain the price per sqft) and also for the tenants. As a letting agent we see very few 3 bedroom city centre properties on the market for rent but when we do they are snapped up very quickly. I have never seen a 4-bed apartment in the city centre. So come on developers, lets see lots more 3 and 4 bedroom apartments. It is good for everybody.