Savills has revealed the residential element of its annual cross-sector forecasts for investments in 2024 to 2028.

The agency says turbulence in the mortgage markets, an uncertain planning environment, increased build cost inflation and regulatory changes in the private rented sector, suppressed transactions and growth in the residential sector in 2023. 

But with inflation heading back towards the Bank of England target of 2.0 per cent and more stability in the mortgage markets, Savills expects to see the primary sources of financial disturbance ease back over the course of this year.

Despite tougher conditions for landlords, with Savills forecasting rents to grow by a further 18.1 per cent by 2028 there is still significant opportunity for those less reliant on debt, particularly for those with a portfolio furthest from London, with Savills forecasting 9.2 per cent returns for the North West.

But struggles in the private rented sector are also expected to spur on institutional landlords, and both Build to Rent and Purpose Built Student Accommodation are expected to play an increasingly important role looking forward, says Savills.

These are Savills residential themes and top pics for 2024:

·         Even though costs of debt are expected to stay “higher for longer”,  progressive cuts in the cost of mortgage debt over the next five years should open up capacity for a return to house price growth and an increase activity levels. Savills has forecast mainstream house prices to return to growth by 2025;

·         Prices remain 19 per cent below their 2014 peak in prime central London and is overdue a recovery. But such recovery will have to take place in a much tighter tax and regulatory environment than before, at a time when the current parliamentary opposition has non-doms tax status and overseas buyers stamp duty firmly on its radar;

·         The prospect of a more widespread recovery in market conditions will come as welcome news to a housebuilding industry, which has been at the sharp end of the housing market downturn of the past year. Coinciding with the cessation of Help to Buy, substantial increase in build costs and a substantial shift in planning policy this has been a bruising experience;

·         Buoyed by a burst of strong rental growth, larger equity-rich landlords have been much better placed to weather the storm, being able to take a more sanguine view on the impact of the end of the Assured Shorthold across a portfolio which diversifies tenant specific risks;

·         But the benefits to developers of selling built-to-order units off-plan (post Help to Buy), looks more conducive to the process of assembling portfolios of energy-efficient, new-build residential homes than ever.

Top picks:

·         Best in Class: Whenever a market is in the late stages of a downturn or the early stages of a recovery, it’s the properties that are Best in Class that perform most strongly. It’s a combination of location, situation, aesthetics and quality of accommodation. Difficult to describe but you know it when you see it;

·         Retirement for rent: The emergence of new players and new models in the retirement housing sector, backed up by a structural imbalance in demand and supply underpins this year’s residential investment pic;

·         Partnerships with an affordable twist: While delivering a new generation of new towns is a laudable aspiration, the timescales, trials and tribulations involved in bringing these into being suggest it remains one for the evangelists. With a shift in focus to the delivery of affordable homes in the event of a change in government, the agency expects to see more partnerships between developers and affordable housing providers, especially the new generation of “for profits”.