The Investment Property Databank’s (IPD) results of Q4 2007 showed that annual capital values of commercial property have dropped by 8.7%, and the 3-month total return to property investments was -7.6%, which is the biggest quarterly fall in the history of the index and an unprecedented reversal that has dragged the 12-month total return to -4.4%.
All segments delivered negative returns although offices had the best result for the year, with an annual total return of -1.4% and the industrial market had an annual total return of -3.9%. Retail fared the worst with an annual return of -7.1%.
Many expect this year to be worse, with similar losses expected in the first quarter of 2008.
The Financial Services Authority (FSA) warned difficulties in the rental market could mean big losses for banks that have lent on commercial property. Certainly, the £12bn of property derivatives linked to IPD data suggest there will be at least two more years of negative returns. These declines will also feed into the property portfolios of large listed property companies such as British Land and Land Securities.
“Agents need to be licensed”, says ARLA
Robert Jordan, president of the Association of Residential Lettings Agents (ARLA), cautioned the new housing minister, Caroline Flint, and PM Gordon Brown to “not go too far on the legislative bandwagon or you will kill off the private rented sector” at ARLA’s fifth annual conference.
Jordan said: “The Government’s own figures may suggest that there are over half a million landlords in the private rented sector but the market cannot afford to lose any of them, particularly in troubled times.”
He also reminded delegates that it is only off-plan and new build speculation, particularly with flats in large blocks in the metropolitan areas, which are the primary cause of the problems in the market.
Delegates were also told that licensing of all letting agents is the solution to bad practice in the rental market, especially as flat house sales will encourage other insufficiently-qualified agents to go into lettings as a survival mechanism.
Lord Richard Best, previously the director of the Rowntree Trust and now chairman of the Hanover Housing Association and council member Ombudsman for estate agents, said that the timing is right for the Housing and Regeneration Bill to include measures for the regulation of private sector landlords, as well as housing associations and council landlords. He commended the Law Commission report that advocates a self-regulatory regime whereby anyone wishing to be a landlord or letting agent must be a member of a professional body or an approved accreditation scheme.
BPF wants a professionally rented sector
The British Property Federation (BPF) believes that a professional rented sector similar to that of the USA and Germany could house the millions of people unable to get on the housing ladder.
A professional rented sector is where large property managers run domestic lets in a similar fashion to offices, with professional management and economies of scale enabling longer-term lets and a greater level of confidence from consumers.
The BPF thinks that policy makers have long ignored the professional rented sector as a serious solution to the housing crisis, focusing instead on building more homes to buy. Recently, the housing minister outlined the planned review of the rental sector, to be led by Julie Rugg at York University, which was warmly received by all sides.
Rupert Dickinson, chairman of the BPF’s residential committee and chief executive of Grainger Plc, said: “Ministers need to wake up to the reality that no matter how many new homes we build, there will continue to be a huge affordability gap between what people earn and can afford to spend on a house. Institutions can provide the long-term tenancies and levels of service that tenants benefit from abroad, and it’s time that we took the professional rented sector seriously as a viable alternative to ownership.”
EPCs introduced into commercial property
Energy Performance Certificates (EPC), an element of Home Information Packs (HIPs) will be introduced into commercial property from 6 th April 2008.
Commercial buildings will need an EPC when they are constructed, sold or let. This new regulation is part of the Energy Performance of Buildings Directive which requires all EU countries to establish minimum energy performance standards for buildings.
An EPC will provide an energy rating for a building which is based on the performance potential of the building itself (the fabric) and its services (such as heating, ventilation and lighting). It will be accompanied by a recommendation report on how the energy performance of the building could be enhanced. The phased timetable for the implementation of the new regulations is: from 6th April 2008 on the construction, sale or letting of all commercial buildings of more than 10,000 sqm; from 1st July 2008 on the construction, sale or letting of commercial buildings of more than 2,500 sqm and from 1st October 2008 on the construction, sale or letting of all remaining buildings that are not dwellings.
Developers want more homes on Greenwich Peninsula
Developers are bidding for an extra 512 homes on the Greenwich Peninsula, London, as work begins on the site.
Developers Lend Lease and Quintain Estates and Development PLC, in partnership with the national regeneration agency English Partnership, have made the application to build two blocks of housing. Greenwich Council will make a decision on the proposal later this month.
The first plot faces west across Central Park and will contain 207 homes, 83 of which will be designated affordable housing. The second block is a 23-storey building on the riverside, adjacent to a building that has been pre-let to Transport for London. Of the 305 apartments in the block 92 will be for affordable rent.
Work on the £5bn regeneration of 190 acres of Greenwich Peninsula site will take place over the next 15 years. The proposed development will include 10,000 new homes, 150 new shops and restaurants,1.6 miles of river frontage and 48 acres of open spaces and parks.
Central London’s property market is resilient
According to Knight Frank, central London’s property prices grew by 1.1% in January which is the highest monthly rate since the credit crunch began to build in September 2007. From January 2007-08, the market grew by 26.2%.
Liam Bailey, head of residential research at Knight Frank, said: “While a gradual slowdown continues to take its toll on the main housing market, properties in prime central London appears to be proving resilient against the background of economic uncertainty.
“As this market depends to a very great extent on the strength of the City it is inevitable that the current unease in the financial sector is influencing its slowdown. However, it is clear that city money is still being invested in prime central London properties, though perhaps not with the same enthusiasm that followed last year’s bonus round.
“We are sticking by our forecast of 3% price growth overall in prime central London in 2008 despite the resilience shown in January. A view endorsed by an emerging belief that the Bank of England’s ability to introduce lower interest rates in the second quarter may be compromised by growing inflationary pressures.”
New mortgage approvals hit 12½ year low
New mortgage approvals for house purchases hit a 12½ year low in December, according to Capital Economics.
The credit crunch has clearly left lenders less willing and less able to lend. Anecdotal evidence suggested that the rejection rate for mortgage applications rose sharply in November and December. The recent drop in mortgage approvals seems to be entirely consistent with the drop in new buyer enquiries, suggesting that the primary driver of the fall in mortgage approvals has been lack of demand among prospective homebuyers.
Demand may have been adversely affected by events in the last half of 2007. The Northern Rock debacle had a major impact on confidence; a number of estate agents and house-builders have reported that the sight of people queuing to withdraw their savings triggered a dramatic and immediate collapse in buyer activity.
Ed Stansfield, property economist for Capital Economics, said: “This weak economic outlook suggests that a meaningful recovery in confidence and mortgage demand is unlikely in the short term. What’s more, buyer enquiries have been falling since the turn of the year, while average selling times and viewings per sale also began to rise well before credit markets seized up. So, while the credit crunch must have had some additional dampening impact, there is ample evidence that the housing market was already cooling in response to previous interest rate rises. Again, that suggests that tighter credit standards are not the primary cause of the slowdown.
“Even so, the longer the credit crunch lasts, the more likely it is that the supply of mortgage credit will be cut further and that this will become a more significant constraint on housing transactions. With fewer funds to lend, lenders will shy away from all but the most credit-worthy borrowers. And even those able to obtain loans will see their purchasing power reduced by the new, less generous, terms.
With little end to the credit crunch in sight, and the economic outlook still deteriorating, our view that we are witnessing the early stages of a prolonged housing market correction remains ontrack.”
Speeding up London’s £3bn housebuilding programme
A new partnership to help speed up the delivery of the Capital’s £3 bn housebuilding programme was announced today by Housing Minister Caroline Flint and the London Mayor Ken Livingstone.
The Homes and Communities Agency (HCA), the Mayor and the Government are joining forces to establish the London HCA Board, a local sub-committee of the HCA responsible for helping to deliver affordable housing in London and the South East. London Boroughs will also be represented and fully engaged in this process.
The new board will be responsible for meeting the Government’s and the Mayor’s objectives to deliver a significant increase in the total number of homes in a way that is environmentally sustainable, significantly increase the number of affordable, family-sized homes and create communities in which people want to live by targeting and regenerating the most deprived areas of London.
Caroline Flint, housing minister, said: “It is essential we increase the amount of affordable housing in London but we need to ensure homes are built where they are most needed. By strengthening our relationship with the Mayor’s office and giving a stronger voice to London boroughs we can ensure we create new communities and regenerate deprived areas in a much more joined-up way.”
£300m regen planned for Wolverhampton
Wolverhampton City Council has received confirmation that a large area of land in the city centre can be purchased to make way for a £300m regeneration scheme.
Hazel Blears, Secretary of State for Communities and Local Government, has given the Council the go-ahead to compulsory purchase 72,000sqm of land to the south of the city centre to build the Summer Row development. This is a mixed-use scheme incorporating a shopping centre, a cinema, new leisure facilities, homes and a new underground car park.
The Secretary of State’s decision followed a public inquiry about the compulsory purchase order, held between April and July last year. The council and its development partner, Multi Development UK, gave evidence throughout the hearing that the creation of Summer Row was vital to the regeneration of Wolverhampton and future prosperity of the city.
Interest rates cut to 5.25%
The Bank of England has cut interest rates by 0.25% to 5.25%. Many analysts expect further UK cuts this year, but say inflation fears will stop the UK cutting rates as drastically as they have in the US.
The Bank said in January that the risk of inflation had ‘worsened markedly’ and the most recent UK inflation data showed that national consumer price inflation remained at 2.1% for the third month in a row in December, but energy prices have increased substantially since then.
