Market Prospects – First Half 2013
Low risk, low return profile to continue
We expect the sales market to remain strong in the second half of 2013, with prices continuing to increase at a lower rate of up to 2% to end the year up 7% overall.
In the rental market we expect values to stabilise during the stronger summer months, when new entrants arrive in London fuelling demand for rental property but we do not anticipate any significant growth in rental values because there is stock flowing in to the market as developments are completed.
Landlords will be prepared to negotiate on asking rents in order to retain tenants at lease renewal.
Yields on residential property that is held for investment, will gradually fall as sales prices move upwards and rental values find a longerterm stability.
The economy seems to have finally entered a period of recovery but it is founded on consumer spending and its longevity is by no means certain. A shock could come from almost anywhere: a country leaving the Eurozone, a crisis in China, or even a widening of the conflict in Syria to the oil-producing countries of the Middle East.
Another banking crisis is quite possible, and that does not even take into account that the economy is still being propped up by the Bank of England’s policy of quantitative easing (QE). For the time being however, confidence is rising.
There has been a minor building boom in London an we expect it to continue over the next couple of years. It is unlikely to temper price rises to any great degree because supply remains inherently constrained and the desire to invest money in residential property looks set to persist for a few more years. A significant proportion of the new build stock will be bought for investment and fed into the rental market.
Given the population projections for London (one million extra by 2020 and a further million by 2030 according to the ONS) and the fact that property is unaffordable for so many, demand for homes to rent seems to be ensured, albeit without any substantial rental growth.
Risk arises from the investor buyers who might be deterred by falling yields or by exchange rate fluctuations that prompt overseas buyers to look elsewhere for investment opportunities. Interest rates are also a potential trigger for a future loss of confidence in London’s property market, although any rises are likely to be modest and rates are likely to remain low for the foreseeable future.
We do not foresee the bursting of any house price bubble in the near future, as demand will continue to outstrip supply.
Low risk, low return profile to continue Any slowdown in our market is unlikely to cause any distressed sales because the majority of buyers are contributing substantial tranches of equity and so small rises in interest rates are unlikely to create stress. Our typical buyer is putting down between 50 and 100% cash and so banks are able to confine their lending to customers considered to be ‘low risk’.
Opportunities to develop in Central London are very limited. High-rise development is one solution to supply constraint. We expect to see development at increased densities, which, in most cases, means taller. In May 2013, Berkeley Homes submitted a planning application to build two towers of 42 and 36 storeys and four blocks of 7 to 9 storeys each containing 995 homes in a Norman Foster designed scheme at City Forum, 250 City Road, EC1, which becomes vacant in December 2015.
British Land, Barratts & Helical Bar have applied for 463 homes, an 86,000 sq ft hotel and 30,000 sq ft office, across towers rising to 26 storeys at Aldgate Place, E1, which is next to Barratts’ sucessful Altitude Development and Berkeley Homes’ Goodman Fields Development.
Following 20 years of residential development, the City and Docklands are now established as prime Central London addresses. Demand for sales and tenancies are stronger than ever. New residential quarters being developed at King’s Cross and Aldgate will increase the range of choice available to buyers and tenants. This injection of stock will help to meet unsatisfied demand and to create new demand as the areas become established.