Palmer Capital Partners claims the collapse of an £80m industrial portfolio sale was a direct result of Gordon Brown’s proposal to remove rate relief.
Under the proposal, empty commercial properties will receive full rate relief for three months, half rate relief for three months and no rate relief from then on.
The Palmer Capital sale was of the five industrial estates across the UK from a mix of Palmer-backed developers including a Wrenbridge-developed warehouse scheme worth £30m.
Alex Price, Palmer director, said: “We couldn’t sell because we couldn’t quantify what business rates would be. The proposal will make deals dependant on rent guarantees more difficult. We would now have to tell the purchaser to take on the business rate risk. We see this as a retrograde step.”
Ben Coles, Wrenbridge development director, said the proposal will also affect a trio of purchases made by the developer last week.
The news comes just two weeks after General Motors’ European Property manager, Julian Lyon, posted a petition against the proposal on the 10 Downing Street website, which currently has more than 2,400 signatures.
Jump in inflation causes a market rethink
The jump in inflation to 3.1% in March has caused markets to reappraise the outlook for interest rates, says the Council of Mortgage Lenders.
Their market commentary showed a 0.25% rise in the official bank rate to 5.5% at next month’s monetary policy committee meeting is considered a virtual certainty. And the markets are pricing in a further rise to 5.75% during the summer. A number of lower-priced fixed rate mortgage deals have been withdrawn as market rates along the yield curve have risen.
Inflation of 3.1% was only a little above the February inflation report forecast that it would end the first quarter at 2.9%. Inflation is still expected to fall sharply as factors which have pushed it up such as food and furniture prices decrease as announced reductions in utility prices take effect. Inflation could fall back to 2% within a matter of months. The inflation report published on 16 May will give the bank’s updated assessment of the medium term risks.
The rise in interest rates over the past 10 months is having an effect on those trying to get onto the property ladder. Following a small increase last year, the number of first time buyer loans was down 3% in the first two months of 2007 compared with a year earlier. First time buyers had to spend an average of 18% of their income to meet mortgage interest payments in February, up from 16% a year earlier and the highest level since the early 1990s. However, the number of loans to home movers was up by 9% in the first two months of the year compared with the same period in 2006.
Paul Samter, economist for CML, said: “Despite the headwinds, lending volumes have remained strong this year. Gross lending in the first quarter was 13% stronger than a year earlier, with lending in March at an all time record in seasonably adjusted terms. Net lending was 14% higher than a year earlier. This strength looks set to continue into the spring in view of March’s loan approvals figures, which were substantially higher than in any previous month.”
Lowest quarterly total return recorded since Q2 2003
All property total returns has eased to 2.3% over the three months to March, which is the lowest quarterly total return recorded since Q2 2003.
Growth properties have outperformed value properties, recording a total of 2.7% compared to 1.2%. This two tier market is apparent across all sectors with retail value properties particularly coming under pressure. Also there is a greater proportion of prime as opposed to secondary assets in the market, and these prime assets are supporting overall returns.
Jeremy Handley of Jones Lang LaSalle told PIN: “The main cause of the difference in returns between growth and value is there is more capital in growth than value proportionally. Investors are more confident in buying growth than value as there are higher yields and more secondary factors in value. This implies more risk to the investor who will want more compensation for taking on the risk.”
Julian Stocks, head of capital markets England at Jones Lang LaSalle, added: “This is born out by our current sales, where prime opportunities remain keenly sought after.”
Aberdeen most expensive city in Scotland
According to Citylets, Aberdeen as overtaken Edinburgh as Scotland’s letting hotspot.
The north east city has witnessed the highest growth of Scotland’s three major cities in the past year. Rental prices for residential property are also on the up, making Aberdeen the most expensive city to rent a one or two bedroom property.
Thomas Ashdown, managing director of Citylets, said: “The fact that Aberdeen has now overtaken Edinburgh in both rental prices and demand for one and two bedroom properties is astonishing and underlines the reason why it is one of the most attractive areas for buy-to-let investors in the country.
“I’d say this change has occurred as a result of increasing performance in Aberdeen rather than a dip in the market elsewhere. The reasons for this are likely to be the continued strength of the Aberdeen economy, an increase in employment in the oil and gas sector and the rise of Aberdeen property prices.”
UK commercial property’s total return of a four year low
UK commercial property delivered a total return of 2.5% q/q in Q1 2007, according to the Investment Property Databank, taking the 12-month return to 15.6% outstripping both UK equities and bonds which earned investors 11.1% and 0.5% respectively.
The 2.5% return delivered in the first quarter was a four-year low. The income return component of total return remained unchanged at 1.2%, but the rate of capital growth fell back from 2.5% in Q4 of 2006 to 1.3% in Q1 of 2007. The two drivers of capital growth both contributed less positively to total returns in Q1. Rental growth decelerated to 1.1% in Q1 from 1.3% in Q4, while the yield impact was down from the 1.6% in Q4 to 0.6% in Q1.
In addition, the gap between retail and office sector annual total returns rose from 750 basis points in Q4 2006 to 820 in Q1 2007. The drivers being the continued deterioration in retail sector total returns, rather than a continued improvement in office sector returns. Offices remain the best performing sector, but office total returns fell back from 5.4% in Q4 2006 to 3.6% in Q1 2007.
Malcolm Frodsham, research director for IPD, said: “It’s been inevitable that the strong inward yield movement had to end at some point, and the first quarter has seen only a modest inward movement in the sectors can see strong future rental growth.”
PricewaterhouseCoopers’ plans for riverside building
PricewaterhouseCoopers LLP has announced its plans for a new building at 7 More London Riverside.
The offices will be part of the More London development on the South Bank located near to London Bridge station. The new building is due to be completed in 2010 and will house around 6,000 people which is in addition to the approximately 4,500 people based at the firm’s Embankment Place offices.
Kieran Poynter, chairman of PricewaterhouseCoopers LLP, said: “This is an exciting move for the firm. The new offices will provide a high quality working environment for our people and incorporate our approach to sustainable practices by using low carbon and solar technologies. The 7 More London Riverside site also has excellent transport links making commuting and visiting clients very convenient. In recent years we have refurbished and developed several of our premises across the UK and this latest London project represents the newt stage in the design process.”
Work on the 500,000sqft site is expected to begin later this year.
Rolling out standard planning application forms
The government has announced that September 2007 is the date for the rollout of a standard planning application form for use across all English Local Planning Authorities.
From October 2007, the National Standard Planning Application Form will become the official method of submitting a planning application for most types of consent.
Commercial property consultant, Underwoods, agrees with the move. Paul Tudor of Underwoods said: “The introduction of the 1APP form is fundamental to the Department of Communities and Local Government’s commitment to making the planning system simpler, faster and easier to use. And as well as speeding up the planning process, the new form will also enable planning services to be provided on-line and give applicants certainty about the information they need to provide.”
Currently, each planning authority produces its own planning application forms which are inconsistent. There is a phased implementation between now and September 2007.
Land Registry figures show that homes are earning more than their owners
Property prices in Brighton and Hove are rising by more than £500 a week, the fastest rate since records began.
The average asking price for residential property jumped £27,000 last year, making the city the fastest growing property market in Britain. The figures from Land Registry mean a typical home is now earning more than its owner. Nationally, the monthly worker is on a gross salary of £23,000. Statistics show the average salary in Brighton and Hove is £26,461. The price of a typical home in Brighton and Hove had reached more than £217,000 by March.
Last month, a report from financial analyst Datamonitor warned of a threat that a sharp fall in prices could be on the way. Karina Purang, the report's author, said: “Undoubtedly, house prices cannot keep going up for ever.”
Hugh Tucknott, of the Brighton and Hove Estate Agents Association, said: “It is great news for people with property, but the rate of increase is quite frightening for everyone else.
“It is becoming very difficult for first time buyers to get on to the ladder. There simply are not enough homes at affordable prices. There is an urgent need for more one and two-bedroom homes.”
Lack of activity in UK and Irish commercial property markets
Growth in the UK and Irish commercial property markets slowed in Q1, according to the latest Investment Property Databank figures.
Irish real estate posted its lowest quarterly returns since the beginning of 2004, 2.2% compared with 5.8% in Q4 2006, despite outperforming equities (0.3%) for that quarter.
Rental growth of 1% made offices the best-performing sector, returning 2.8% against 2.4% for industrial, while retail saw the steepest drop, a fall of 1.6% in Q1 2007 compared with 7% in Q4 2006.
However, IPD senior research analyst Angela Sheahan warned against seeing the quarterly returns as evidence of a longer-term slowdown. “It’s possible that it’s peaked but I doubt it”, she said. “If you look at annual rental growth, it isn’t obvious that growth has slowed. It’s more likely a lack of activity.”
Overall, Q1 returns for the UK were a little better at 2.3%, the lowest since 2003, driven by poorly performing retail. By comparison, office performed relatively well at 3.6%, from 5.4% in Q4 2006.
Continental Europe reported more robust returns last week. IPD figures for Austria showed a 6.5% return for 2006, the highest since the index was launched, although it underperformed equities (27.1%). And Austrian retail returned 8.4% for the year, compared with 6.4% for commercial and 6.3% for residential.
First time buyers’ income increasingly consumed by mortgage payments
Higher interest rates are causing UK first-time buyers to spend more of their income on mortgage interest payments, according to the Council of Mortgage Lenders.
Data from the regulated mortgage survey revealed that first-time buyers in March spent an average 18.3% of their income on mortgage interest payments, compared to 18% in February and 16% in the same month in 2006. The rise, which largely reflects increases over the last year in UK interest rates, means that the proportion of first-time buyers' income consumed by mortgage payments is now the highest figure since 1991.
While the number of first-time buyers increased in March to 33,100 from 26,100 in February, their number was down by 8% on the same month last year. The survey revealed that 88% of first-time buyers, the highest proportion ever, chose a fixed-rate product, compared to 87% in the previous month. Fixed-rate mortgages continued to remain the most popular mortgage product in March, accounting for a record 78% of all loans, up from 75% in February.
Michael Coogan, CML director general, said: “With a rise in interest rates widely expected later this week, it is encouraging that those first-time buyers who are getting a foot on the property ladder are opting for fixed-rate products.
“Affordability constraints continue to be a barrier to home-ownership for many first-time buyers. Mortgage lenders are trying to help by offering innovative products where appropriate, but will want to ensure lending remains prudent.”
Increase in mortgage repossessions
According to the Department of Constitutional Affairs, Q1 2007 saw a 1% increase in mortgage repossessions.
Data from the DCA reveal that, in total, there were 33,715 possession claims lodged against households in England and Wales in the first three months of the year, and 21,931 repossessions orders were issued by the courts.
David Stubbs, senior economist of Royal Institution of Chartered Surveyors, said: “The interest rate rises since August 2006 has clearly started to put some mortgage owners under financial pressure, and with further hikes on the way, household finances will feel the pinch, currently resulting in 52 repossessions per day.
”However, many mortgage owners who get into trouble with their payments are often able to avoid repossession by selling their home. The latter is only possible due to the present high level of housing demand created by a strong economy.”
Residential Rental growth at highest ever level
Rental growth is at its highest ever level according to research by Paragon Mortgages.
Its latest survey of small scale and professional buy-to-let landlords indicates that 46% believe that achievable rent levels have increased over the last six months, while a further 51% believe that rent levels are stable.
Paragon’s monthly buy-to-let index shows that, on average, rental incomes have increased by 8.2% over the last quarter, and 1.6% over the last month, fuelled by growing tenant demand. Increased rents are expected to result in better returns, and on average landlords predict that net returns will rise over the next 12 months, from 4.3% to 4.5%.
With interest rates almost certain to rise this week, it is likely that people will hold off purchasing homes until borrowing becomes more affordable, and push tenant demand further.
John Heron, managing director of Paragon Mortgages, said: “Demand for private rented property is high, fuelling continued growth in achievable rent levels. The economic environment as well as rising divorce rates, inward migration and an expanding student population, mean that an increasing number of people require rented accommodation, and this is driving rents up. These changing social and demographic trends are influences that will continue to fuel the market over the long term and landlords are confident in the sustained growth of rental levels and net returns, underpinning the ongoing increase in the number of buy-to-let investors.”
