HSBC claims that the sale and leaseback of its head office building in Canary Wharf is the largest single property deal in history.
The bank has agreed the sale and leaseback of its head office building in Canary Wharf, London, for £1.09bn to real estate company Metrovacesa. HSBC has exchanged contracts on the deal which sees the bank retain full control of occupancy, while Metrovacesa takes a 998-year lease. HSBC has leased the building back for 20 years at an annual rent of £43.5m with an option to extend for a further five years.
David Hodgkinson, group chief operating officer of HSBC Holdings, said: “This is a good opportunity for HSBC to manage its property assets effectively and we’re pleased to do so with the assistance of Metrovacesa.”
HSBC is among many banks to have sold off their property. Merrill Lynch and Goldman Sachs have just sold their London headquarters, while Barclays has recently sold hundreds of branches. Last year, HSBC sold £200m of property, including 77 UK branches, and it is understood that it will sell a further 100 high street branches in Britain this year.
Leveling of activity in residential housing market
Figures released by the National Association of Estate Agents from its March housing market survey have revealed a leveling of activity in the residential housing market.
Buyers, sellers and completed house sales were all at a similar level to the same period last year. March is traditionally a busier time in estate agency than February and March’s figures reflected this, with a slight upturn in activity from last month.
The number of houses for sale in March increased by 8.7% from figures reported in February. NAEA members across the country reported an average of 62 properties for sale in March, relatively level to the 61 recorded in March 2006.
The number of people looking to buy property increased in March by 11.6% from February and by 3.7% from the same period last year. Average sales increased in March to 14% by 1% from February, which mirrors figures reported in March 2006.
In addition, first time buyers claimed 12.6% of the market up from 12.3% in February, and encouragingly this is up from 8.9% in the same period last year.
Charles Smailes, NAEA president, said: “It appears that we are finally hitting a period of leveling in the residential housing market. However, this is unlikely to last. There is a great deal of uncertainty in the market at the moment. The increase in interest rates and the implementation of Home Information Packs are set to have a significant impact.”
Tenant demand is increasing
Landlords are experiencing increasing levels of tenant demand with 92% of respondents saying that demand is stable, growing or booming, says Paragon Mortgages.
This is the second highest level on record; the highest was in Q4 of 2006. Paragon’s survey also found that the average void period on a private rented property has dropped 2% on the last quarter. On average landlords’ properties are empty only 2.96 weeks a year which, with continued high demand, is likely to fall further.
These findings are on the back of other indicators of strong tenant demand in the market. The Royal Institute of Chartered Surveyors’ recently announced that tenant demand is rising at its fastest pace for nine years, with 30% more surveyors reporting a rise, rather than a fall in demand. The Association of Residential Letting Agents has also found that the demand for rented residential properties has continued to outstrip supply especially in central London, where 62% of respondents now say there are more tenants than there are properties available to them.
John Heron, director of Paragon Mortgages, said: “We have been running this survey for five years, and have seen a very strong trend of growing tenant demand throughout this period. But recently, in both our own research and that of others, we’ve seen demand for private rented accommodation hit new peaks. Demographic influences that underpin the private rented sector are all continuing to rise, which bodes well for continued healthy growth of the buy-to-let sector.”
UK property tycoons could double by end of decade
The number of UK property tycoons could double by the end of the decade with an additional one million homeowners seeking to rent out a second property by 2010, says Mintel.
According to Mintel, there are currently around two million people in the UK who own a second home. Of those, around 3% are buy-to-let landlords and a further 3% of homeowners were looking to purchase a second property so they can let it out by the end of the decade.
Research indicates that in 2007, the number of buy-to-let mortgages is expected to reach 361,000, up almost 10% on last year’s figure.
Paul Davies, senior financial analyst at Mintel, said: “It is clear that these days, buy-to-let is no longer the exclusive domain of professional portfolio landlords. Increasingly, property owners are seeing the benefits of investing in bricks and mortar and often regard the second homes market as a good alternative means of saving for retirement. As long as these trends continue, future growth in this market should be guaranteed.”
Effects of house price acceleration
According to Nationwide, pace of house price growth almost doubled during April to 0.9%, up from 0.5% in March.
This brings the annual rate of inflation back into double digits at 10.2% and the price of a typical house up to £180,314 which is £16,741 higher than at this time last year. The Bank of England held off raising rates at the beginning of April but the acceleration in house prices during the month makes a rate rise look a certainty.
Fionnuala Earley, Nationwide’s chief economist, said: “However, while the monthly rise in prices is stronger than the Monetary Policy Committee would have liked to see, it can take some comfort from the fact that the underlying trend is softening and the return to double-digit annual growth largely reflects this time last year. The three-monthly growth rate, which smoothes the volatility of the monthly series, is still cooling in response to the earlier rises in interest rates. The latest figures show prices increased by 2% between February and April, the lowest three-monthly growth rates since August.”
Earley believes that the talk of rates climbing to 6% and beyond are overblown, and if implemented in the current climate could be damaging to housing market stability. “With the market already showing signs of cooling, too sharp a rate hike could undermine market confidence and dry demand up swiftly”, she says. “But on top of this, they could also lead to widespread payment difficulties which, in an illiquid market, could precipitate price falls.”
Response to RICS Commercial Property Market Survey Q1
The Royal Institute of Chartered Surveyors’ Commercial Property Market Survey contained little evidence to suggest that the occupier market recovery will fade in 2007, says Capital Economics.
The office sector was the star performer. Both the confidence and demand balances rose to record highs (+38 and +35 respectively), while the rental expectations hit a six-year high of +43.
News in the industrial sector was mixed, but generally positive. The demand balance rose to a six-year high of +14. Slightly less encouraging were falls in new enquiries and lease lengths, and inducements and availability of space also increased. The rental expectations balance was +17, comfortably above the long term average of +10, pointing to solid prospects for industrial income returns.
The retail sector lags behind the others. Confidence and demand are muted, and new enquiries fell for the 11 th straight quarter in Q1. In addition, availability and the use of inducements both rose while lease lengths fell again. The rental expectations balance fell from +7 to 0 (the long term average is +6).
“Overall, today’s data support our view (and that of the IPF Consensus) that the occupier market recovery will continues this year, with all-property rents growing by around 4%”, said Kelvin Davidson, property economist for Capital Economics.
ICE, RICS and RTPI push for National Infrastructure Framework
Around 230,000 professionals from the Institution of Civil Engineers, the Royal Institute of Chartered Surveyors and the Royal Town Planning Institute have written to Chancellor Gordon Brown calling for a clear plan for delivering multi-billion pound investment in the nation’s infrastructure, ahead of the forthcoming Planning White Paper.
They have asked the government to clarify its plans for major investments into new transport, energy, waste and water infrastructure. Recent reports to the treasury from Sir Rod Eddington and Kate Barker, highlighted that Britain needs to invest in major infrastructure to create more flexible labour markets, ensure energy security, accommodate population growth and guard against environmental harm.
The three construction bodies are calling for a National Infrastructure Framework to help the government determine the location of major new infrastructure. They believe the framework should be regularly monitored in spending reviews and would link into Regional Spatial Strategies.
Graham Chase, RICS President, said: “We urge the government to follow up on Kate Barker's recommendation for an independent planning commission. This will enable decisions on national infrastructure projects such as new roads, power stations and airports to be integrated into a development plan, avoiding the long delays that currently affect major infrastructure projects. The government must act to establish a national infrastructure framework.”
Scotland’s new building laws to cut energy emissions
New building laws came into force on 1 st May to cut energy emissions from all new-build residential property in Scotland.
The new Section 6 of the Scottish Building Regulations is Scotland’s equivalent of England and Wales’ Part L energy conservation building regulations. As part of the new regulations, tests are now recommended on all new homes to determine how energy efficient they are by checking air tightness via gaps and cracks in floors, walls, windows and doors.
Peter Chapple of LK Accreditation said: “Housing accounts for more than a quarter of the UK’s carbon emissions. Poorly fitted windows and doors, and inferior building materials are the most common ways for air to escape. But air leakage paths aren’t always visible, and are often obscured by internal finishes or external cladding. The test is so sensitive it can even pinpoint vulnerable areas in the building design or materials.”
Tests should now be carried out on a sample of housing on each new development. According to LK Accreditation, the key is to carry out the tests as early as possible in the development so that any problems can be identified and remedied quickly.
Mortgage demand weakens, says BBA
March figures for high street banks shows mortgage demand may be weakening due to rising interest rates, according to the British Bankers’ Association.
March’s gross mortgage lending was £18.6bn, which is 5% more than March 2006 but only 198,000 mortgages were approved in March; a decrease of 8% when compared with the previous year. The average loan approved for house purchases was £150,800, which is 12% higher than a year earlier. Also, underlying net mortgage lending rose by £5.1bn, similar to February’s increase, but less than the recent average of £5.5bn. The annual growth in net mortgage lending continued to stay around 14%.
In addition, BBA figures show that credit card borrowing fell by £0.1bn in the month, while borrowing on personal loans and overdrafts were largely unchanged.
David Dooks, BBA’s director of statistics, said: “Strong levels of gross mortgage lending reflect homebuyers and homeowners seeking out fixed rate mortgages as protection against rising interest rates. However, in the last two months net lending has risen less sharply and, compared to the same time last year, the number of mortgages approved in March was lower, indicating that weaker demand is starting to emerge.
“As people continue to reduce their commitments, weaker spending on credit cards and lower new loan borrowing led to an overall fall in personal borrowing”, he concluded.
Merits Committee questions HIPs effectiveness
The House of Lords Merits of Statutory Instruments Committee’s latest report questions whether Home Information Pack regulations will effectively achieve its objective.
Peter Bolton King, chief executive at the National Association of Estate Agents, said: “There are a number of flaws with the legislation that has led us to believe that it will not improve the home buying and selling process in the way the government suggests, and that in fact will have a serious and negative affect on the UK housing market.”
The report concludes that it has not been able to convince principle stakeholders in the housing market that the proposals will be effective for their declared purposes.
King said: “It is clear that the committee has serious concerns about the proposals and we would encourage the government to take this on board. The government has continually refused to take the advice of stakeholders on these matters. In its report, the Merits Committee expresses its concern over the fact the legislation has so little support from major stakeholders. The committee states that it ‘cannot overlook the doubts that have been widely expressed’.
However, Mike Ockenden, director general of the Association of Home Information Pack Providers, believes that the report has not presented a balanced and fair review by failing to obtain evidence from a number of industry players including AHIPP, COPSCO and environmental groups.
He said: “While its findings have been far from damning of the HIPs regulations, the committee’s failure to consult with major players in the industry has made it difficult to see how a truly balanced report can have been derived. As with any major reform there will always be an element of opposition within the industry but if the committee had successfully consulted with the full range of industry bodies involved, a number of the conclusions drawn may have been very different.
“In one month from now, HIPs is going to happen and the industry is ready. Home buyers and sellers can look forward to a less stressful process and further we can expect to see a considerable reduction in the carbon emissions from our homes, an issue which has to be paramount at this time of climate change”, concluded Ockenden.
One step for Addleshaw Goddard, one giant leap for the property market
Addleshaw Goddard has won a test case in The High Court which sets an important precedent regarding the grounds upon which landlords of commercial retail premises can protect their interests.
In February 2006, Powerhouse proposed a CVA under which it would close 35 of its 85 stores that were making a loss. Landlords of the closed stores, whether they had guarantees or not, would be paid only 28p in the pound, and other classes of creditors would be paid in full. In addition, PRG would be released from its guarantees. At a meeting of all the creditors, including those to be unaffected by the terms of the CVA, the proposals were accepted.
Addleshaw Goddard was advising the property investment funds of British Land, Scottish Widows, and Standard Life Investments in a dispute with electrical retailer PRG Powerhouse Ltd, the supervisors of its Company Voluntary Arrangement and its parent company PRG Group (now called The Wall Group) regarding the use of the CVA to absolve PRG from guarantees or compensation given in respect of Powerhouse’s obligations under its leases.
The court heard two preliminary issues. Addleshaw argued that the CVA could not release the guarantees and also that landlords who had guarantees had been treated unfairly by receiving no benefits.
Louise Verrill of Addleshaw Goddard said: “In our view, it would have set a very dangerous precedent for financially unstable companies to terminate parent company guarantees at will. Any other result than victory for our clients would have undermined the value of such guarantees in the property sector and had a significant effect on the value of the commercial property. It would also have had a major impact on all sections of UK Plc where guarantees have been given.
“Today’s decision will be welcomed by landlords who now have greater clarity as well as protection from the law to recover monies owed to them.”
Ian Fletcher, commercial and residential director, said: “It highlights points of principle. I am glad it was resolved in the courts, as otherwise our members would be seeking changes in legislation, which isn’t now necessary. It is a significant win for the property industry.”
Average time to sell a house is 16 weeks
Almost half the people in the UK underestimate the amount of time it takes to sell their home. In a recent survey UK Property Bank found that 48% of those questioned believed they could sell their home within three months.
Whereas in reality, say the National Association of Estate Agents, the average time taken to sell is around 16 weeks, but six months ago it was 17 weeks from instruction to completion.
Jim Akin, director of UK Property Bank, said: “The national average figure includes statistics from London and the Home Counties, where almost all commentators agree there is currently a serious shortage of property for sale ; the lowest level in a decade, and houses put up at a sensible price are snapped up within days. This is certainly not the situation outside these areas, so the time to sell in other regions is invariably longer than the average.”
NAEA’s statistics for the early part of this year showed that, on average, 43% of house sales are agreed within one month of property being put on the market, and 48% of completions take a further two to three months.
However, a significant number of vendors are taking longer to sell their properties, with 13% of sales taking between three and four months to complete.
