Demand among tenants for flats has fallen sharply due to a glut of properties on the market, an industry body said today.
The Royal Institution of Chartered Surveyors said 16.9 per cent of surveyors saw a rise in demand for flats rather than a fall in the third quarter of the year - down from a 36.9 per cent balance in the previous quarter.
RICS said the figures were consistent with anecdotal evidence of a slowdown in the new build flat market, which has seen construction boom across the UK in recent years. The organisation also highlighted a weakening buy-to-let sector as the housing market slowdown took effect in the quarter ending October 31.
New landlord instructions, an indicator of buy-to-let activity, dropped to a balance of plus 11 per cent, down from 19 per cent, as an uncertain economic backdrop dissuaded new investors from the market, RICS said. It added that the credit crunch is likely to see banks and building societies become more selective in their lending and said the proportion of landlords selling properties when leases expire has hit a two-and-a-half year high of 6.5 per cent.
Jeremy Leaf, RICS spokesman, said: "A combination of tightening lending criteria and successive interest rate rises has started to hit the buy-to-let market but with the drop in capital gains tax due in April, many landlords are resisting selling until spring."
In the wider rental market, the number of surveyors reporting a rise in tenant lettings rather than a fall dropped from 28.5 per cent in the previous three months to 20 per cent.
It added that demand for homes was "much stronger" than for flats, although the number of surveyors reporting a rise in demand than a fall for houses slipped to 25.2 per cent from 39.2 per cent.
It said the strongest areas for tenant demand were the South East and the East of the country.
Overall gross yields were broadly unchanged but RICS said yields on flats had fallen for their fifth quarter in a row while houses saw their successive quarterly rise.
Meanwhile rents are also continuing up, with 31 per cent more surveyors seeing a rise than a fall, as would-be buyers continued to struggle to step on to the housing ladder and remained cautious of buying during market uncertainty.
Mr Leaf added: "With rents on the increase, many would-be buyers will find accessing the housing market even more difficult as they struggle to raise the capital for that first important purchase.
"However many landlords will take solace from uncertainty in the economy and enjoy the gains from rising rents."
The growth in tenant demand for rental property in the West Midlands for the three months to October increased at a more rapid pace than in the previous period. However, new instructions grew at the slowest rate in the region since the beginning of 2005.
Richard Franklin, RICS West Midlands spokesman and divisional development director at Persimmon Homes, said: "Rents in the West Midlands continue to rise, a trend that looks set to continue into 2008."
Some 18 per cent more chartered surveyors in the region reported a rise than a fall in tenant lettings, up from 12 per cent in the last quarter. A total of 43 per cent more chartered surveyors reported a rise than a fall in rents compared to 45 per cent in the last quarter.
New landlord instructions dropped below the long run average of 16 per cent. Only five per cent more chartered surveyors in the region reported a rise in landlord instructions compared to 27 per cent in the previous quarter. Mr Franklin added: "Looking forward, the pace of rental growth is projected to slacken while still being strongly positive.
"Moreover, surveyors are generally more upbeat about the prospects for houses as opposed to flats where there is perceived to be an adequate level of supply."