UK residential returns climbed to 16.8% in 2006 – the first increase in investment performance for three years.

The latest figures from Investment Property Databank make positive reading for the nation’s army of buy-to-let investors.

Total returns for the asset class were in line with those generated by equities and only just below the return achieved by commercial property.

Over six years, residential property investment performance has delivered returns just below 14% - trumping those of bonds and equities over the same period.

London’s ‘bubble’ residential property market has dominated recent headlines for seemingly unstoppable property price growth, but double-digit returns were enjoyed across the majority of UK regions. But returns are almost entirely driven by capital appreciation rates as income returns slipped even further.

The highest income return (as a component of total return) of 3.7% was achieved in Scotland, while the lowest income return of 3.1% was in central London.

In recognition of the need to expand its coverage of the residential investment market, IPD is targeting significant expansion of its sample in order to provide a more accurate and broader insight into the UK’s most talked-about asset class.

Co-founding director of IPD, Ian Cullen, said: ‘These impressive 2006 returns reflect the performance of a small group of residential investors. Our major project for 2007/2008 is to work closely with the British Property Federation to deliver a major increase in our coverage of this market – targeting significant parts of the estimated £511bn of private housing investment.’