Glut of supply pushes rents down says RICS

Rents dropped across the residential lettings sector during the third quarter of this year as would-be-sellers flooded the rental market with unsellable properties, says the RICS.

In its residential lettings survey Q3 published today, it said that the net balances of surveyors reporting new instructions to let both flats and houses - an indicator of supply - are now at historic highs.

Around 50% and 68% more surveyors reported a rise than a fall in new instructions to let flats and houses respectively.

Surveyors report that frustrated vendors are placing their property on the market to let as they have been unable to agree sales due to a lack of demand in the housing market.

The influx of supply onto the market has forced downward pressure on rents.

The net balance of surveyors reporting rises or falls in rents fell from a positive 31% in the second quarter to a negative -12% in the third quarter, the lowest level in the survey’s history.

London and the south east have been hardest hit with the net balance of surveyors reporting rises or falls in rents for London houses falling from a stable 0% in the second quarter to negative -53% in the third quarter. Flats fell from a positive 5% to a negative -33%.

The biggest turn around was in the south east, with the net balance of surveyors reporting rises or falls in rents for houses plummeting from 53% to -33%.

The RICS also said that expectations for future rises in rents turned pessimistic for the first time since July 2002.

Demand for rental property remained positive in the third quarter but housing transactions are at the lowest level since records began as banks continue to limit the availability of finance to the vast majority of buyers.

27% more surveyors reported a rise than a fall in rental demand compared to 36% in the previous quarter. The RICS said that the falling pace of demand can be attributed to the fact that many 'have now accepted their lot in the current climate and are sitting tight until the housing market picks up'.

RICS spokesperson James Scott-Lee said: 'The lettings sector has witnessed a boom in 2008 as sales in the housing market continued to slow. Many have been able to take advantage of rising rents to secure good returns.

'However, the market place has become more and more competitive as many vendors have been forced to become amateur landlords, creating an inevitable downward pressure on rents where supply has matched demand.

'With national average house prices set to weaken in 2009, yields may increase for those investors who can provide the right product for the right market place.'