An Empirical Study of the UK Private Investor Market

This study focuses on the private investor market. Through the estimation of a model of prices and analysis utilising the IPD/Jones Lang LaSalle ARAS data, we offer empirical evidence on the drivers of demand and prices in this segment of the property investment market. Fundability, the margin between yields and the cost of borrowing, emerges as the key determinant of prices. Rent expectations and relative returns to equities are of secondary importance. We also find a weakening relationship between prices and fundability and between prices and other determinants in recent years, suggesting to a degree, the presence of more random factors, which explain the variation in prices, and raise the risks of shocks and higher volatility. Our analysis confirms volatility persistence in this market and volatility clustering, hence adverse shocks will lead to clusters of higher volatility. We find that it will take four to five quarters for the conditional volatility to revert half way back to its equilibrium path; however, this adjustment is shorter than in the earlier years of our sample.