Regulated Tenancies
Graph 7 plots the average yields from regulated tenancy investments at auction since Q1 ’05 in the four RAPID geographic areas. Since Q4 ’07 regulated yields have risen significantly. The lowest returns are evidenced in central and inner London (2.9%) with northern England and Scotland providing the highest (5.9%). “Fair rents” in this sector are generally pinned at discounts to market levels in accordance with the Rent Act 1977. Tenants enjoy security of tenure for life with others having (limited) rights of succession. Consequently, demand has historically focussed upon tenant circumstances (elderly tenants, single occupants, etc.). The greater the prospect of possession, the higher the value. In a climate of escalating property values, investors have been willing to accept slimmer discounts to vacant possession (VP) values. But as property prices fall, so the percentage of VP value offered by investors has eased. The regulated market has therefore suffered a double blow. This has resulted in the yield decompression now evident across the sector.

Graph 7