The ECB has been maintaining a low interest rate policy for years. As a result, the difference between the return on bonds and the highest return on housing is at least 2.8%. This means that investors are increasingly turning towards housing as an investment instead of bonds. This does not only apply to Dutch investors; foreign investors are also increasingly finding the Netherlands to be an interesting investment market.
More construction leads to more investment opportunities
Municipalities have in recent years steered towards a larger proportion of free rental segment houses in new construction. In 2017 alone, this led to a 50% increase in granted permits. This development is continuing in 2018 and there is a clear break in the trend compared to the prior, smaller free rental segment. The reason for this is the growing demand from consumers who are increasingly opting for this type of house. This is among other things due to changes regarding mortgage interest relief. This growing housing production offers investment opportunities for investors. They find this segment attractive because of the limited risk thanks to consistent rental income and a potential rise in rental prices.
The search for returns forces investors out of big cities
Investors are willing to pay a high price to acquire this popular investment product. The falling gross initial yields which were a result of this have been visible for some time in the large cities in the Randstad. It is expected that the initial yields will continue to fall throughout the entire country in 2019, with a 3% outlier in Amsterdam. Investors are continuing to expand their search area to achieve higher yields. The share of housing investments outside of the four large cities (G4) increased from 58% to 69% in the last three years. The top gross initial yield is now below 5% in the majority of the twenty largest cities (G20).
New housing index for housing investors
The question is now where investment in the free rental sector is the least risky and where the greatest yield can be achieved. Or where the optimal risk-reward ratio can be found. The Residential Investment Attractiveness Index was created to map this. This index compares 18 indicators which are the foundation of housing investment. Examples include the future need for this type of houses, the affordability and financial capacity of the housing market and the political climate in the municipality. This combination of indicators results in a risk score. The index then compares the risk to the reward. On the basis of this, an investor can determine the best municipalities to invest in.
Schiedam has the highest yield, Amstelveen the lowest risk
Each investor has his own strategy with a corresponding risk profile. The most risk-averse housing investors are best off in Amstelveen, followed by Haarlem and Haarlemmermeer. The most important reason for this is the strong expected growth of the type of households looking for free rental segment housing. Smaller fluctuations in housing prices also provide a better investment climate than Amsterdam, for instance. Schiedam is the most lucrative destination for investors with more of a risk appetite. Of the 50 large municipalities in the Netherlands, Schiedam offers the highest yield. It is notable that Utrecht has the best risk-reward ratio of the five largest cities. This is mainly due to the stronger growth of the number of highly-educated households in the city combined with high employment. The rental prices are also more stable than in Amsterdam, for example. There are other differences between the large cities. The investment climate for rental housing is better in the Hague than in Rotterdam and Eindhoven.
The Residential Investment Attractiveness Index allows all types of investors to make an educated decision when investing in housing. It is notable that Utrecht has the best risk-reward ratio of the five largest cities. This is mainly due to the stronger growth of the number of highly-educated households in the city combined with high employment. The rental prices are also more stable than in Amsterdam, for example. There are other differences between the large cities. The investment climate for rental housing is better in the Hague than in Rotterdam and Eindhoven. The Residential Investment Attractiveness Index allows all types of investors to make an educated decision when investing in housing.