© IPDwww.ipd.com

Residential investment can deliver:

Exploding the myths

“Residential property consistently offers investors significantly lower income performance than commercial”

Myth or Fact?

IPD Residential research, UK Residential service sponsored by:

RESI 2010, Celtic Manor, 16-09-2010

© IPDwww.ipd.com

Residential property Performance

2.2

6.22.5

3.2

9.6

4.7

0

2

4

6

8

10

12

Residential market let Commercial property

Income Return Capital Growth Total Return

Total return, Six months to June 2010

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Long Term Income Performance

-1.0-2.3 -2.5

-1.8 -1.3 -0.8 -1.3-2.1 -2.4 -1.9 -1.6 -1.4

4.74.14.2

6.26.2 5.8

-5

-3

-1

1

3

5

7

9

11

13

15

Jun 0

2

Jun 0

3

Jun 0

4

Jun 0

5

Jun 0

6

Jun 0

7

Jun 0

8

Jun 0

9

Jun 1

0

3 yr

s an

nual

ised

5 yr

s an

nual

ised

9 yr

s an

nual

ised

Relative Residential market let All commercial property

Market Let Residential vs commercial property, June

2001 - June 2010

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Long Term Capital Growth

17.011.6

1.5

-5.3 -6.7

1.7

15.7

28.7

-10.9

9.94.7 5.9

6.20.9

-3.8

0.3

-12.4

-3.6

-40

-30

-20

-10

0

10

20

30

Jun

02

Jun

03

Jun

04

Jun

05

Jun

06

Jun

07

Jun

08

Jun

09

Jun

10

3 yr

s an

nualis

ed5

yrs

annua

lised

9 yr

s an

nualis

edRelative Residential market let All commercial property

Market Let Residential vs commercial property,

June 2001 - June 2010

© IPDwww.ipd.com

Long Term Total return

15.8

8.9

-1.0

-7.0 -7.9

0.9

14.1

25.8

-12.9

7.7

3.0 4.4

11.2

5.1

0.3

6.5

-6.9

2.0

-30

-20

-10

0

10

20

30

Jun

02

Jun

03

Jun

04

Jun

05

Jun

06

Jun

07

Jun

08

Jun

09

Jun

10

3 yr

s an

nualis

ed5

yrs

annua

lised

9 yr

s an

nualis

edRelative Residential market let All commercial property

Market Let Residential vs commercial property, June

2001 - June 2010

© IPDwww.ipd.com

What this new dataset tells us?

• Property company management expertise capable of achieving income returns which are closer to commercial levels. The 9 yr relative return of -1.4% annually compares favourably to the -2.2% relative return for the full annual dataset to December 2009

• Extra income return does not come at a cost of total return, in fact it’s improved to +4.4% above all commercial annually over 9 years (full dataset achieved +4% annually to Dec 09).

• Capital growth of residential greatly exceeds commercial (5.9% annually

over 9 years).

• Wouldn’t this affect the income return over time?

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Three year Income Performance

-1.1 -1.1

-0.2-0.8

4.1

6.2

5.4

-2

-1

0

1

2

3

4

5

6

7

8

Jun 08 Jun 09 Jun 10 3 yrs annualised

Relative Residential market let

All commercial property Residential subject to commercial CG

Three year Standing investment income return; Residential

vs commercial With capital growth factor removed

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Five year Income Performance

-1.9

-1.0 -1.1 -1.5-0.8

-1.3

4.1

5.8

4.4

-4

-2

0

2

4

6

8

Jun 06 Jun 07 Jun 08 Jun 09 Jun 10 5 yrsannualised

Relative Residential market let

All commercial property Residential subject to commercial CG

Five year Standing investment income return; Residential

vs commercial With capital growth factor removed

© IPDwww.ipd.com

Nine year Income Performance

-0.6 -0.5-1.2

0.40.0 0.1

0.0

0.6 0.6

-0.1

4.5

6.26.1

-2

-1

0

1

2

3

4

5

6

7

8

Jun 02

Jun 03

Jun 04

Jun 05

Jun 06

Jun 07

Jun 08

Jun 09

Jun 10

9 yrs

annu

alised

Relative Residential market let

All commercial property Residential subject to commercial CG

Nine year standing investment income return; Residential

vs commercial with capital growth factor removed

© IPDwww.ipd.com

Conclusions

• Expert fund and property management of residential can deliver decent annual income returns and impressive annual total returns, especially relative to commercial.

• Residential income performance relative to commercial is significantly devalued by it’s superior capital growth.

• Over the long term, residential property can deliver similar netincome receivable as a percentage of original outlay to commercial for an equivalent sum invested in both. At the same time it offers a far greater total return.

© IPDwww.ipd.com

Residential investment can deliver:

Exploding the myths

“Residential property consistently offers investors significantly lower income performance than commercial”

Myth!!!

Mark Weedon, Head of UK Residential Services, IPD