House prices 'overvalued by 20%'

Britain's house prices are overvalued by almost 20%, according to a study from estate agent Cluttons and Oxford Economic Forecasting.

It states that UK house prices are overvalued by about 19%, though the figure for central London is lower, at 8%. It now appears that the residential property market is now set to experience a soft landing rather than a crash, according to the report.

Neil Chegwidden, of Cluttons, said: "We do not believe UK residential prices will suffer a 'crash'. Most forecasters, including ourselves, adjudge that the UK housing market will experience a soft landing and will probably see some positive growth in most of the next five years."

A recent Treasury paper revealed that the government is to start industry wide consultations on Real Estate Investment Trusts (REIT's), with the aim of their introduction by 2006.

REIT's allow ordinary savers as well as institutional investors to invest in property easily without actually owning the property.

REIT's work as stock exchange-quoted companies that own the properties and investors then buy shares in the company. Smaller scale investors can have access to commercial property returns without significant capital outlays or tax inefficiency by using REIT's.

Some industry consultations have already taken place over the last year so the announcement is being taken as a sign the Chancellor is now positive about the move.

Further evidence that property is an excellence means of long-term evidence has been provided by a study conducted by Cluttons and Oxford Economic Forecasting. The research found that nationally, house prices have risen by an average of 11.4% a year over the past 10 years.

ARLA's latest quarterly survey reveals that there is a growing shortage of properties in the rental market, although average rental returns have declined slightly, achievable rent levels have increased over the last six months.

A third of all ARLA member offices reports that during the three months to March, demand for rental property outweighed that of supply (up by nearly a quarter - 23%, since the last quarter of last year).

Average rental return has fallen slightly. Houses fell from 5% to 4.9% and flats, 5.3% to 5.2%.

ARLA said that in all areas, its agents reported that achievable rent levels have risen.
Compared to three months ago, there has been a substantial improvement in prime central London, where the proportion of respondents saying there has been an increase in achievable rent levels has risen from 24% to 28%.

This applies to all property types. In the rest of the South East the average achievable rent has risen from 21% to 26% and in the rest of the country there has been a small decline, from 37% to 35%.

Despite having already invested £85m in Liverpool, since opening its financial solutions operation in 2003. The Yorkshire Bank is setting up an innovative new fund (Liverpool Property Fund) aimed at providing finance for developers setting up property schemes in the Merseyside region. A reported £100m will be available for commercial development schemes with a minimum investment value of £250,000 and residential development schemes, focusing particularly on brownfield sites.

The bank chose Liverpool for new investment because it sees major opportunities for further growth, due to an increase in the city's population.

Liverpool managing partner Ian Spink says: "Perhaps the most compelling statistic is the fact that the city's population is growing again. Population growth is one of the biggest drivers on investment and economic activity and it certainly encouraged Yorkshire Bank during the planning phase for the fund."