A new report published by GLA Economics and the British Property Federation called for the creation of a brand-driven home rental market, similar to the USA and Germany.
The report outlines how new planning guidance rental-only homes could lower house prices, increase housing investment and deliver new homes from branded rental providers. The aim is to encourage funding to develop a professional rented sector offering branded rented accommodation including decent family homes and long-term tenancies, all professionally managed like an office block.
The professional rented sector would, in essence, be like having Google or Virgin style brands delivering rented housing. ‘Build-to-let’ could potentially create a separate residential market for rental, and works on the premise that, at present, housing is developed solely for ownership.
So while homes may be rented out, their value and that of the land they are on, is determined by how much they would fetch in the ownership market. A planning definition only allowing development for rent would change all this. It would mean such properties would be valued more for their rental income and would thus be as attractive to institutional investors as offices or retail outlets. As well as GLA Economics and the BPF, build-to-let is also backed by Savills, CBRE, Knight Frank and Unite.
Bridget Rosewell, consultant chief economist for GLA Economics, said: “The UK market has become very restricted, limiting access to housing to only a few ways. Encouraging new forms of investment is important to increasing supply and choice in the marketplace. This research helps identify how greater diversity of supply and faster building can be encouraged to meet the needs of London residents.”
Jacqui Daly, director at Savills, who conducted the research, said: “A build-to-let model would allow more operators to grow and become branded providers of rented housing. The build to let product would increase their scale and market dominance, which would have the added advantage of increasing competition between small and large landlords, which would ultimately forcing bad ones out of the sector. It would also increase the supply of long term rented housing and offer a customer focused service to occupiers. As they grow in size, there will be more scope for branded landlords to attract further investment and launch on the stock market.”
UK has a remote risk of recession
According to Nationwide, the UK has a remote risk of a recession. Its data showed that house prices fell by 0.5% in February which is the fourth consecutive month that residential house prices have declined. Also, the annual rate of house price inflation fell from 4.2% to 2.7%.
Fionnuala Earley, Nationwide’s chief economist, said: “ The trend in prices is clearly weakening, but the size of the drop in the annual rate between January and February perhaps overstates the rate of cooling as it partly reflects the particularly strong increase in prices in February last year. The 3-month on 3-month rate of price growth rate fell to -1% in February, down from -0.4% the previous month. The average price of a typical property now stands at £179,358, an increase of £4,653, or £12.75 per day, over the last 12 months.”
NLA launches new Scottish branch
The National Landlords Association (NLA) has expanded its operations by launching its own Scottish branch called NLA Scotland.
NLA Scotland was formally started at the Scottish Parliament in Edinburgh, with the body stating that it exists to provide landlords in the private rental sector with advice, support and information.
David Salusbury, NLA’s chairman, said the move was a ‘critical development’ for this sector in Scotland. He added that it would mean Scottish members getting more help as they dealt with ‘a very wide range of issues which impact on landlords up and down the country’.
East Manchester regeneration to compensate for no super-casino
The Government has scrapped the proposed ‘super-casino’ for Manchester amid concerns that it would have a negative effect on Manchester, but may unveil a compensation package for East Manchester.
Culture secretary Andy Burnham confirmed that 16 smaller casinos in places like Leeds and Milton Keynes were still to go ahead. Burnham said the casinos would be the most heavily regulated in the world, with a ban on credit cards, free drink promotions and restrictions ensuring the doors were closed for at least 6 hours a day.
Sir Richard Leese of Manchester City Council was disappointed with the result and would not rule out legal action. The casino would have created around 3,000 jobs and £265m of investment in East Manchester.
The compensation package will include £10m to turn it into a world-class destination for sport.
Leese said: “We are disappointed with the Government’s expected announcement. We believe a regional casino provides the best regeneration benefits for East Manchester and we will continue to pursue this. A regional casino will deliver around 3,500 new jobs for East Manchester and an increase in Manchester’s GVA equivalent to £1bn over 10 years.
“ Manchester’s key regeneration objectives remain to bring jobs to deprived communities and to get local people into those jobs. To that end we will engage with the Government to achieve our regeneration objectives for the city as a whole and East Manchester in particular, but we need the clearest commitment that any package would deliver the greatest possible benefits.
“We are committed to doing all we can, and we have drawn up a range of regeneration options to benefit local people in East Manchester including the extension of the life of New East Manchester till 2014/15 with an associated budget of £20m per year; developments at Sportcity to create an additional 1,600 jobs; digital developments with 500 jobs; a national skills centre with 200 jobs; a digital and animation business cluster with 250 jobs and also the relocation of Government functions, including hundreds of jobs for local people.”
Concerns over property slump in Leicester
Some estate agents in Leicester have reported that the prices of some city centre apartments have fallen by up to 30%, according to a report by the BBC. Fears have also been raised that the wrong sort of homes are being built in Leicester and a lot of accommodation is being left empty as a result.
At the same time planning officials have reported a ‘crying need’ for family housing, with calls for 1,200 to be built annually in the region. The city council said it could not put a quota on different types of developments but called for a sensible mix of housing.
One estate agent reported that a two bedroom flat in Alexander House in the St Georges area of Leicester, which was bought two years ago for £135,000, had just sold for £88,000.
Some of the new-build flats which are currently on the market in the city centre are said to be in excess of 70sqm and unaffordable to most local workers to either rent or buy. At the moment, there is so much new supply on the market that buyers are reported to be able to pick and choose what they want.
Tenancy Deposit Scheme kitty reaches £500m
Half a billion pounds in tenants’ deposits has been safeguarded by the Tenancy Deposit Scheme in less than a year since deposit protection and Alternative Dispute Resolution became mandatory.
The Tenancy Deposit Scheme released this figure with five weeks to go before the first anniversary of mandatory operations. By 1 st March, the scheme covered nearly 450,000 tenancies, housing close on 700,000 tenants in property owned by 335,000 landlords. These figures are rising on an average by 7.5% a month.
During 2007, on average 127 disputes were resolved through Alternative Dispute Resolution each month. This is more than double the number handled under voluntary deposit protection. The number of disputes sent to the Scheme continues to rise.
Lawrence Greenberg, chief executive of The Dispute Service, which runs the Tenancy Deposit Scheme said: “Obviously we are very pleased with our success but we are well aware that Tenancy Deposit Protection is a new concept for the public, landlords and tenants, and their letting agents.
“We are doing everything we can to make our web-based systems easy to use for agents who are responsible for protecting the rights and money due to both tenants and landlords.”
Prime Central London ‘showing signs of encouragement’
Prices for prime property in central London (valued over £2m) grew 0.6% on a monthly basis during February, according to Knight Frank, which added that February’s annualised figures show that prime central London property continues to rise albeit at 23.8%, the slowest rate since August 2007.
Liam Bailey , head of residential research at Knight Frank commented: “At a time when uncertainty continues to swirl around the financial market’s on which London’s prime market relies, February’s growth rate of 0.6%, which is also the monthly average for this sector over the last six months, demonstrates a degree of resolve.
“The three monthly growth rate of 2.8% also strikes an optimistic note for the prime market. However, on an annualised basis the long-term trend is that of a continued slowdown, with the rate now at 23.8%; its lowest point since the heights achieved in the late summer of 2007.
“The chief hotspots in February were Kensington and Chelsea which recorded above average monthly growth rates of 1% and 0.7% respectively. Chelsea also demonstrated that it remains one of the most sought-after areas of London with an annualised prime property inflation rate of 30%; fractionally ahead of Mayfair where comparable properties increased in value by 29.7% over the last 12 months.
“After a troubling few months the government’s decision to amend capital gains tax from its present rate of 40% down to 18% from April will help underscore these modest improvements in tough market conditions. To those who have been seeking a way of capitalising their property assets for whatever reason, this will come as very timely news. If the chancellor also uses his budget report on 12 March to increase the zero rate of stamp duty land tax from £125,000 as some have suggested, the outlook will be better still, but in the current financial climate this is by no means certain and especially at this end of the market. We’ll have to wait and see.
“Vendors and purchasers alike will be watching this week’s monetary policy committee’s decision on base rates very carefully. While those buying prime property are less reliant on mortgages than those in the wider market, a further cut to the base rate would be very well received, especially at a time when mortgage approvals have fallen radically in recent months.
“We stand by our earlier assessment that this market should grow by 3% over 2008, though we should emphasise the caveat that with economic uncertainty dominating the minds of purchasers the sector remains finely balanced.”
Landlords’ biggest concern is increasing amount of paperwork
The biggest issue facing property investors with a growing portfolio is the huge amount of paperwork they now have to deal with, according to property management software firm Property Portfolio Software.
The company has analysed three years’ worth of feedback from its customers and it identified a number of trends to work out their top five concerns. Investors said that the biggest pain is the sheer amount of paperwork that has to be handled, to ensure rents are received and all bills are paid.
Other issues in the top five include keeping track of legal documentation and effectively managing tenants. Amer Siddiq, founder of Property Portfolio Software’s parent company Tax Portal Ltd, said: “As a property investor myself I know what a nightmare it can be keeping on top of property management issues while developing your portfolio.
“When we analysed the results, we weren’t surprised to see concerns about staying organised taking the top four places in issues facing landlords.”
The top five issues identified by Property Portfolio Software were;
Increasing paperwork: keeping on top of bills and rental income
Staying legal: keeping track of safety certificates and legal documents
Good tenant management: making sure they get the information they need
Income tax management: knowing what is due and when
Maintaining a positive cash flow: with the current low rental yields
Amer added: “It was this feedback from customers which inspired us to develop the property and tax management software in the first place.”
IPD reports lowest UK commercial property returns since 1990
IPD has announced in its 2007 UK Annual Property Index that capital value of investments in UK commercial property fell by -7.7% and the total return to property investments was -3.4%, the biggest fall in the index since 1990.
The company reported that the turnaround was driven by a sudden collapse in investor confidence after the summer and triggered by pervasive financial sector uncertainty. The underlying income stream to property actually grew strongly, with rental values rising in all sectors and up 4.6% year-on-year overall.
Rental values grew particularly strongly for West End offices, rising 18.6%. Malcolm Frodsham, research director at IPD, commented that: “The 2007 results have to be put into the context of a very strong run of returns to commercial property, indeed total investor returns remain over 10% p.a. on a three, five, ten and twenty year basis. All eyes should now be focused on the occupier markets: a weak economy will feed through to weaker rental growth but any strong economic news should bring buyers back into the sector.”
Price of residential development land falling
Agricultural land values may be soaring but residential development land including greenfield sites recorded small falls at the end of last year with no sign of a reversal of fortune in the near future, according to Savills.
Any newly marketed brownfield sites are likely to be reappraised in light of the change in market conditions and regulatory and other cost burdens. The reappraised values may make some landowners reluctant to sell at all. In high demand areas, most brownfield sites are in some kind of existing use so, unless there is pressure to sell, it would seem likely that landowners will sit tight.
Yolande Barnes Director Savills Research said: “It is not so much falling brownfield values that are the issue but the near disappearance of the land market. It seems highly likely that unviable sites will continue to be mothballed and the demand for land dwindle away – except where there is the prospect of change of use.
“Land buyers and dealers are set to have the hardest time this year unless they concentrate on ‘oven ready’ greenfield land, longer term strategic sites and ‘forced sales’ such as receiverships.”
Savills research is forecasting a -5% drop in average UK greenfield land values this year with higher falls likely in areas where land is most plentiful. However, the company believes that the price falls should affect small sites in high demand areas to a much lesser extent.
Urban land is more likely to be adversely affected, especially in high supply city centres that have been heavily reliant on off-plan investor purchase in the past. For this land type a falls of -12% is predicted during 2008.
Barnes added: “If the housing market resumes a moderately upward trend towards the end of the year, then land prices may end their freefall. We don’t however expect them to start rising rapidly again. The cost and regulatory pressures, especially the 2016 zero carbon targets and delivery challenge set by the Government, are likely to keep land price growth very subdued for some time as land is fundamentally re-valued to reflect the changed development conditions.”
