Residential rents to rise in 2010

House prices increase by +0.2% for fourth month in a row

An extra £290m from the Government to build 5,500 new homes

Commercial property rental values expected to continue to fall in 2010

Property valuations rise by +50%

Rents are expected to rise in early 2010 as the number of rental properties coming on to the market has fallen for the first time since January 2008, according to the Royal Institution of Chartered Surveyors’ (RICS) Q3 Residential Lettings Survey.

Due to the recent pick-up in the housing market, 22% more surveyors now expect rents to rise rather than fall in the three months to March 2010, as there has been a decrease in the number of rental properties, particularly houses, becoming available to buy and this has resulted in surveyor optimism increasing for the first time since July 2008.

New instructions have reached their lowest levels since RICS started the survey in 1998, with 11% of surveyors stating that the number of new instructions coming onto the market has fallen rather than risen.

Jeremy Leaf, RICS’ spokesperson, said: “It seems the current upward trend in the housing market is having a more significant effect on the lettings market, with many of the accidental landlords returning to the sales market to take advantage of the recent price increases. As a result the recent oversupply is reversing, with new instructions at the lowest levels we have seen. This, of course, is impacting on prices and tenants no longer have as strong a bargaining power as they did.”

The number of landlords however who are considering selling their property at the end of the tenants’ lease rose to 3.2%, the highest level since Q1 2008, and this compares with only 1.8% in the previous quarter and a low of 0.2% in Q4 2008.

There were only two regions that showed an increase in rents during the three months and they were London and the North, whereas in Scotland a fall in tenant demand coupled with a rise in instructions has resulted in a further fall in rents and the report suggested that this trend will likely continue.

S K Donald, Donald’s Chartered Surveyors in Ayrshire, said: “We are seeing difficult market conditions- slow house sales in Scotland, an increasing number of accidental landlords often offering unsuitable properties, and diluting demand. Rents and affordability are under pressure from the recession with no early improvement in sight.”

House prices increase by +0.2% for fourth month in a row

According to Hometrack’s latest national house price survey, house prices increased by +0.2% in November 2009 for the fourth month in a row, bringing the year-on-year rate of price growth to -2.9%.

Richard Donnell, Hometrack’s director of research, said: “This is the third consecutive month that the survey has posted a +0.2% price rise. Add to this a growth in sales volumes and it is easy to see how agents are beginning to feel more confident about sustainable pricing levels - at least in the short term. But this pick up in market activity and prices is not one that has been felt across the whole country. The stark reality is that there are large swathes of the country where prices have remained unchanged or have seen continued price falls.”

House prices have only increased across 37% of the UK compared to six months ago, whereas a year ago prices were only 2% higher. London and the South East have consistently seen the largest number of postcodes registering price rises with values up in over 78% of London.

Donnell concluded: ““While overall pricing levels are still lower than a year ago, achieved prices have firmed significantly. The proportion of the asking price being achieved currently stands at 93.2% and is still rising month on month. Yet the time taken to sell has now started to plateau, having fallen for each of the last nine months.

“Further price rises could well result in an increase in the time to sell as stronger pricing meets greater resistance from would-be buyers whose numbers are also growing more slowly. The net result is likely to be less upward pressure on prices in the months ahead.”

An extra £290m from the Government to build 5,500 new homes

In an effort to tackle housing waiting lists, Housing Minister John Healey has confirmed the release of £290m in order to build a further 5,500 homes throughout the UK, helping to boost the construction industry and support over 6,000 jobs.

Healey said: "We’re building the homes this country needs, providing new homes for families across the country and helping first time buyers take their first step onto the housing ladder.

"The recent investment to build more affordable homes brings the total Government help for house building since June to £1.8bn and I'm determined to keep building homes in the months ahead, with further cash to come for councils, housing associations and developers."

The funding will be distributed through the Homes and Communities Agency, the Government's housing delivery body, and will benefit 149 local authority areas with a quarter of the new homes being built to help get first time buyers onto the property ladder through the HomeBuy scheme and other low cost home ownership programmes, whilst the remainder of the new homes will provide much needed council and housing association properties for social tenants.

Commercial property rental values expected to continue to fall in 2010

According to the Colliers CRE/EG Capital Investor Pricing survey, rental values for all sectors of commercial property are expected to continue to fall in 2010 by at least -6%, with continued declines in 2011.

Rental growth improved by 4.1% in 2009 however figures still remain negative and the same applies to predictions for 2010 and 2011 . The greatest change was in the office and business park sectors as they increase by 6.1% and 6.4% respectively, with the smallest improvement for retail shop units at 2.6%. Offices and business parks were forecast in the report to see the worst rental growth in 2009 of -14.6% pa and -15.0% pa respectively.

Average capital values are expected to broadly stabilise in 2010 with total returns of 6.6% anticipated, up from 3.2% in June 2009. The total return forecast for 2009 had improved to -6.3%pa up from -15.8%pa in June 2009 and -11.7%pa in March 2009, this was the first time in 2009 that they have gone up.

Despite yields being expected to fall in 2010, 46% of survey respondents felt the timing was right to invest in property now on the basis of the relative yield play, as there had been a dramatic fall during Q3 in the spread between secondary and prime yields.

Retail and industrial were seen as the sectors to buy in the survey, with 69% of respondents preferring them, while 54% favoured offices. This is the first time that offices have registered as a buy for over a year.

With regards risk, 38% of those surveyed stated that they were more tolerant towards short-leases and less than perfect tenant covenants.

Property valuations rise by +50%

Growing confidence in the housing market has seen property valuations rise by over +50% on November 2008, according to Connells Survey & Valuation.

Existing homeowners have been particularly active compared to the previous November, with nearly double the number requesting a valuation on their property. In October and November alone, there have been +40% more valuations conducted for homeowners than in the whole of the fourth quarter in 2008. With requests by buy-to-let investors rising by +7% in those two months, compared with the fourth quarter of 2008, while transactions increased by over a third on last November.

Ross Bowen, Connells Survey and Valuation’s managing director, said: “The upsurge in the number of valuations conducted is another sign of the distance the market has travelled since 2008. We have seen a year-on-year increase from all types of homebuyer. We are seeing the effects of gradually increasing optimism in the housing market - boosting the demand for property from all types of purchaser. If this recovery in activity levels continues in the same vein, we should see a far more positive start to the New Year.

“The current housing market is attractive to both homeowners looking to move and property investors. Some of the value lost by homes has been recovered, prices are on the up, and for cash-rich investors who are less likely to need mortgage finance, the housing market is ripe for investment. Rents have risen since 2008, properties are still affordable and beginning to show improved returns for investors who have bought recently.”

PIN’s latest mortgage recap