London’s residential market still outpaces the rest of the UK
The cost of new homes in London’s most desirable locations (Kensington and Belgravia) has reached £3,597 sq ft, but the prime new homes market is finally starting to show signs of slowing, according to Jones Lang LaSalle’s latest Q3 residential report on London.
James Thomas, head of residential research at Jones Lang LaSalle, said: “We are now seeing signs of slowing following nine quarters of sustained growth and our research shows that over the last 12 months prices have risen by 33%, easing slightly from the 37% growth in values in the 12 months to the end of Q2 2007. Despite the slowing in the market, this pace of growth is in stark contrast to the wider residential market where prices are now flat or falling in some areas.”
With an expectation of a slowing in many of the large economies in 2008, in particular the US, the market is likely to be more challenging. The downturn in the performance of the financial sector has also dented confidence and will impact on the personal wealth of some purchasers.
These influences are now being felt in the prime new homes market with a slowing in sales activity, stimulating a greater willingness amongst developers to offer discounts in order to maintain sale rates. Expectations of a slowing in the market are also likely to deter speculators looking to buy off-plan.
“Our central scenario is for a continued slowing in the market. Supply remains tight and the current uncertainty will result in fewer development starts, limiting prospective buyer options. While the UK economy has weakened there are few expectations of a global recession. This will support demand for prime homes in London, which is considered relatively low risk on an international basis, albeit at a lower level. Given the recent economic weakening, we expect price growth of prime new homes to be in the region of 5% in 2008”, said Thomas.
Commercial lenders tighten their belts
According to research by William Newsom, head of commercial valuation at Savills, eight of the 97 lenders in the UK commercial real estate market have stopped lending to borrowers, while 11 more remain reluctant to take on risk.
Almost 30 will lend but on a qualified basis such as long standing clients buying robust assets. Lending terms have also tightened with rates for secondary properties increasing by up to 1.5%.
Newsom did not say which banks have stopped lending, but they are believed to include Credit Suisse, Lehman Brothers, Bear Stearns, Deutsche Bank and Barclays Capital, the investment banking arm of Barclays Bank.
However, some banks are willing to lend on deals over £150m. Lloyds TSB and Eurohypo have backed Telereal's £400m purchase of property from Royal Bank of Scotland.
Until this month, only one bank had been willing to syndicate debt on commercial property deals. That has now risen to six in the wake of the completion of the £1bn deal to buy Citigroup's headquarters.
Meanwhile in certain parts of the investment market bidders hurried to close deals before the end of the year. Specialist property investor Evans Randall has bought Condor House near St Paul's Cathedral, for between £115-120m on a yield of 5.1%. Owner LaSalle Investment Management had agreed a deal with Glenn Maud's Propinvest earlier in the year but it failed to complete. At the time, its estimated price was £130m.
Norwich Union, was forced to sell assets from its property fund to meet redemptions and is understood to have sold Queen Street Place in the City of London for about £165m (the original asking price was £180m) and a building in Old Bailey for about £70m, against an initial price of £81m.
‘It’s a buyers’ market’, says Hometrack
According to Hometrack, UK house prices fell at its fastest rate in three years in December 2007 and the threat of further declines may cause the property market to seize up in 2008.
The average cost of a home in England and Wales slipped for a third month, dropping 0.3% to £175,200. Hometrack forecasts that the number of property transactions will fall 17% and prices will rise just 1% next year.
Bank of England policy makers said a drop in house prices seemed ‘more pronounced’ than expected as they cut their benchmark interest rate for the first time in two years. Record debt, higher mortgage costs and the property market's worst performance since 1995 have discouraged homebuyers. “The second half of the year has seen a major reversal in confidence”, said Richard Donnell, director of research at Hometrack. “Just as the financial markets have faced a liquidity squeeze, so the housing market is in danger of facing its own liquidity squeeze.”
Prices increased 3% from the previous year, which is the least in 18 months, Hometrack said. The average selling time for a home rose to 8.3 weeks, the most since the survey of real-estate agents and surveyors began in 2001.
The number of property transactions will fall because uncertainty among sellers about the health of the market will cause a ‘major lack’ of homes for sale in the first quarter, Donnell said. “This will act as a support to prices, while also leading to greater price volatility in those markets where there is the greatest lack of supply.”
Donnell concluded: “Levels of market activity are likely to remain subdued over the course of 2008, especially over the first half of the year. Lower interest rates and continued growth in household incomes will help to ease affordability pressures but it is a trend that will need to run for a good 12 to 18 months.”
Commercial rents may tumble
Commercial property agent DTZ has warned that office rents may tumble this year. DTZ is predicting a 15-20% fall in office demand in 2008 as banks and other financial institutions reduce their overheads, which will almost inevitably lead to a softening of rents and the increase in incentives such as rent-free periods.
Commercial property prices began to fall in the summer but the pace quickened due to the credit crunch. Until now, depreciating capital values have led investors to expect higher yields. This is because rents have held up, particularly in London's West End where vacancy rates have been at record lows. According to DTZ, that could now change. It believes the shift in power will be an opportunity for corporate occupiers to drive down their rental bill.
Two regeneration projects in London get the go-ahead
Vital planning applications for two multi-million pound regeneration projects in Southwark, South London, have now been approved by Southwark Planning Committee.
Developer Oakmayne was given permission to build its £100m Oakmayne Plaza mixed-use development. The project comprises three towers; an 18-storey student accommodation block with 247 rooms, a 23-storey block with 231 private flats and a 14-storey block with 81 flats, as well as a market, cinema, shops and restaurants. The project replaces a previous agreed design for the site, allowing more space for local businesses.
The second approved scheme will see construction of the first element of the redevelopment of Aylesbury, which claims to be one of the largest housing estates in Europe. Around 52 new homes were given the go-ahead to be built on a area at the southwest corner of the estate.
Building is expected to start on site in Autumn 2008, with regeneration of Aylsbury to be completed in 2013.
CBI warns that UK will have a difficult year in 2008
According to the Confederation of Business Industry (CBI), the UK is set for a ‘difficult year’ in 2008, but is more likely to see a soft landing than a severe downturn.
In a New Year message, Richard Lambert, director general of the CBI, said the UK economy ‘appears to have started a cyclical slowdown of uncertain depth and duration’.
Lambert blamed the uncertain outlook on the ‘credit crunch’ as well as on rapid price increases of energy, food and other commodities. Domestically, meanwhile, UK house prices have risen rapidly over the past decade fuelled by ‘ever rising volumes of customer debt’, and a sharp reversal ‘would have serious consequences’. According to Lambert, the most likely outcome for the UK is that the coming 12 months will bring a soft landing, after two years of above-average growth.
“If we allow ourselves to get carried away by today’s gloomy headlines, we could talk ourselves into something much worse”, he said.
The CBI forecasts UK GDP growth of around 2% in 2008 and 2009, below both the long term trend and the UK’s recent performance but not ‘anything like a disaster’.
King Sturge’s property predictions for 2008
According to King Sturge, UK house prices are set to rise by 3% in 2008 with prime Central London out-performing.
It predicts a market slowdown due to lower numbers of new buyer enquiries and mortgage approvals. The credit squeeze will particularly affect first-time buyers and investor demand, exacerbating affordability constraints.
Nevertheless, investor activity will be supported by a consolidation in tenant demand in the face of weakening first-time buyer activity. According to King Sturge, investors with significant cash reserves may find opportunities to acquire stock at more favourable yield levels than in 2007.
Around 1.4m UK households are expected to come off cheaper, fixed-rate mortgages in 2008 and this represents a significant market risk. King Sturge does not, however, expect the UK market to be as adversely affected as the US, primarily because the UK did not experience such widespread easing in underwriting criteria to the sub-prime sector.
The forecast national house price growth of 3% in 2008 matches the rate seen in 2005. London is expected to produce the strongest regional growth in Britain at 5%, followed by Scotland. Growth in the Midlands, the North and Wales is expected to be weaker at 1-1.5%.
In addition, King Sturge expects the supply of new stock to remain tight as developers’ sales expectations have declined. With no rise in planning permissions, completion levels are expected to be lower than 2007. The company believes there will be no progress towards achieving the Government’s medium term housing target of 240,000 homes per annum.
St Albans remains the most expensive city in the UK to buy a property
In Nationwide’s recent survey of 30 towns and cities, almost one third saw double-digit house price growth in 2007.
St Albans remains the most expensive town in the UK, with an average house price of almost £350,000. Belfast saw the fastest rate of house price growth in the UK, rising by £200 a day (£306,698). Oxford also maintained its position as one of the most expensive places to live as prices rose by 13% in 2007 (£339,404), while Cambridge slipped back in the rankings as it only increased by 9% with an average house price of £306,134. London’s house prices grew by 16% with a house now costing, on average, £329,007. Newcastle and Durham saw prices fall by 3% in 2007, so average house prices respectively are £178,309 and £152,902.
Fionnuala Earley, Nationwide’s chief economist, said: “ During 2007, Belfast, Oxford, London, Brighton and Cambridge joined St Albans as towns and cities in the UK where the average house price exceeds £300,000.
“St Albans is still the most expensive town in which to buy a house in the UK. However, Belfast saw the fastest rate of house price growth in 2007, bringing it up to fifth place in the rankings, up from seventh, overtaking both Edinburgh and Cambridge. Prices increased by 32% to take the average house price to £306,698.
“ Oxford maintained its position as the second most expensive town in our sample. However, its boat race rival Cambridge slipped back two places to sixth place.
“In the North, Newcastle and Durham both saw prices fall by 3% in 2007. Durham is the cheapest city in our sample with an average house price of £152,902. Newcastle slipped back three places to 24th place in 2007. House prices fell by the equivalent of £15 per day in 2007 taking the average price of a house in Newcastle to £178,309.
“With an average house price of £257,288, Edinburgh was the only Scottish city to appear in the top ten, coming in at seventh place. However, in terms of house price growth, Aberdeen was the stronger performer with an increase of 25% (£234,041) and an average daily rise of £130 which is almost double that of Edinburgh.”
Weakest lending growth in four years in Ireland
Growth in lending to Ireland’s private sector was the weakest in four years in November.
Private sector credit growth fell to an annual rate of 17.1% in November which compared with 18.5% in October and was the weakest rate of expansion since October 2003, according to the Central Bank.
November’s level was well below a peak of 30.3% hit in June 2007 and follows a series of declines triggered by an end to Ireland's decade-long property boom during which house prices quadrupled.
Residential mortgage lending growth also slowed, dropping to 14.2% in November, from 15.1% in October (year-on-year), and to its lowest level since March 1996.
The total amount of outstanding mortgage lending increased by €1.3bn from October to November 2007 to stand at €138.5bn, bringing the average monthly increase in 2007 to €1.4bn.
More reports on Edinburgh’s waterfront regeneration
Councillors have called for more reports on the progress of Edinburgh’s waterfront regeneration over the next six months.
A city council committee heard how the massive regeneration of north Edinburgh has been scaled back to make way for more family housing.
The Waterfront Edinburgh Initiative, which will revamp 140 acres of Granton’s derelict shoreline, is set to be delivered five years early under a new business plan. Instead of building one and two-bed flats at the site, the board has opted to shift the focus onto three-bed flats and townhouses to attract more families to the area.
Councillors asked the firm to ‘bring forward further reports within the next six months, detailing how the company proposes to progress the longer-term issues’.
