Dark clouds of cuts cast gloom, but there’s optimism out there
Is the forecast for residential property overcast? Investor Graham Bates has some post-summer predictions.... Beyond summer, where is the market heading?
THANKFULLY, the main residential property indices have been on the up for most of this year. However, the small increases we have seen across the market as a whole now appear to be faltering and it seems likely that there will be further weakness across the summer months.
Recent housing demand has eased, with the Bank of England reporting a dip in the number of mortgages approved.
While the Halifax reports house prices up 6.3 per cent on a year ago (Nationwide’s figures being slightly ahead of this), it seems increasingly likely that house prices will be broadly unchanged over 2010 as a whole.
Are we now out of the woods? There is probably some way to go but there is now light at the end of a long tunnel. The Halifax says that house prices are up 7.5 per cent from the bottom of the market in April 2009 but still remain 17 per cent below the peak of August 2007.
While further significant falls are unlikely, 2011 is going to see the Chancellor’s new fiscal squeeze kicking in with the likelihood of significant job losses and many people are going to be hit in the pocket.
Against this backdrop, it is hard to be optimistic about the outlook for residential property values and it is not unreasonable to expect that sales activity will continue to remain at a low level for the next 18 months.
Buyer interest fell for the first time since the start of the year while property coming on the market increased at its fastest pace since May 2007.
The RICS said one of the factors driving the increase in selling instructions was a reduction in the amount of leg-work needed to market a property with the abolition of “homebuyer information packs”.
Of course, the residential property sector is made up of many micro-markets and trends differ considerably at a local level. Equally, the market for individual owneroccupied dwellings is very different from the residential investment sector.
At a time when banks are managing large books of distressed properties, patience is going to be the key word where disposals are concerned.
This is especially so with apartment stock although as with all property types, quality blocks will, in our view, stand the test of time as there remains significant demand for apartment living (city and suburban) across all parts of the UK.
Lower quality schemes in less attractive locations will get a harder ride and, in some cases, will find their true value level well below original valuations with little chance of recovery in the medium term.
However, there is cause for greater optimism in relation to well constructed, design-led schemes in the right locations, not least because there is significant rental demand.
In Leeds today, tenant demand is generally greater than the available supply of apartments with both the city centre and surburbs now being long proven as successful investor territories.
Elsewhere the trend is the same; Eddisons Residential is managing schemes throughout Yorkshire as well as across the Midlands, North West and North East where high occupancy levels are also being achieved.
So where should long-term investors be looking to buy within the Leeds market? Suburbs within easy travelling distance of the city and with good transport links, such as Chapel Allerton and Meanwood, continue to perform well but cheaper areas such as
There is cause for great optimism in relation to well constructed schemes in the right locations.
Crossgates are also showing good tenant demand.
In the city, finding a property within easy walking distance of the centre is important.
One of the newest developments, which is proving very popular with tenants, with real design flair and a “hotel” feel is Manor Mills. Just a short walk from the railway station and minutes from the motorway network, only a few apartments here have been released for sale but it is likely to be one of the buildings that will stand the test of time. In summary, the expectation is for a slow second half of the year with a sales market that continues to be difficult throughout 2011 but with rental demand continuing to be strong. In such a climate, buyers who are mortgage approved or investors with cash available may be surprised not to find more deals out there but the reality is that for the most part sellers (including the banks) are sitting tight and waiting for the market to recover.
In the long run, this can only be a good thing for residential property values and the market as a whole.
Graham Bates is a property investor and director at Eddisons Residential, which provides strategic advice on sales and property management on residential property across the UK. Call 0845 6060789.
RAYS OF LIGHT: Leeds city centre is seeing demand exceeding supply for apartments, and well-located suburbs are performing well.
MIXED PICTURE: The second half of the year is likely to be slow.