Sustainable Recovery or Momentary Reprieve
By Keith Gorny
The UK property market has been through the deepest, most sudden slump in living memory and no part of our local market has proven immune. Being particularly vulnerable to redundancies in the financial sector we saw capital values adjust more rapidly than in any other region. In 2008, transaction activity in Kensington and Chelsea fell off a cliff with the borough reporting the lowest number of exchanges since records began.
2009 has had a very different air. More positive data is reporting growing signs of recovery and while the market may remain fitful, it looks like activity, in our area at least, has passed its low point. Capital value decline has stopped and in some instances it has been reversed. Transaction levels are no longer choked by a lack of buyers or, as we will see later, a lack of finance but rather a severe lack of property supply.
An ever greater investment in the marketing of our clients’ properties through the largest most highly experienced team in the area has enabled us to produce some excellent results for our clients this year. Since January we have seen buyer registrations rise significantly, viewing levels increase at all levels and at the time of writing our Central London offices have conducted over 35 sealed bids.
This review will take a closer look at the make up of this activity before assessing some of the principal factors that will contribute to our local market’s performance going forward. While the possibility exists that this may be a false floor, housing began its recession long before the rest of the economy and our results suggest that it has been the first to show signs of recovery too.
An encouraging start to the year saw a significant increase in new buyer registrations and viewings. While lending markets remained dysfunctional, activity was fuelled by overseas cash buyers looking to take advantage of Sterling’s dramatic slide and what they considered to be excellent long term opportunities. These buyers have recently been joined by well funded, wealthy home grown buyers who now take the view that the risk of being slightly early into the market is worth taking. The influence of the contraction in supply cannot be underestimated. Vendors who would have been forced into a reluctant sale through change of personal circumstance have been able to weather the storm on the back of historically low interest rates and large equity stakes. The net result has been a greater number of buyers chasing an ever decreasing supply and prices firming up. Competition on the best properties is beginning to spread to secondary stock.
Fig 1 (Buyer profile in the Notting Hill/Holland Park Area 2009) A significant increase in Family Trust activity which accounted for only 12.6% of sales in 2008. Perhaps surprisingly financial services also accounted for a greater proportion of activity than in the previous year. Manufacturing and retail are notable by their absence.
Fig 2 (Percentage Cash) Historically, our area has always had a low loan to value ratio (a recent Experian Report showed Notting Hill owners have the lowest mortgages in the country with an average loan amounting to only 26% of their property’s value). Our area is less dependent upon a functioning mortgage market than the rest of the country but these are remarkable statistics all the same. The ongoing mortgage drought has certainly played it’s part in defining the profile of our buyers but it’s a common trend for the wealthy to be the first to return to a recovering market. As the housing market is seen to stabilise, the appetite for risk will improve, re-capitalised banks will start to lend and we will see upward pressure on prices as pent up demand can’t be satisfied.
Fig 3 (Local & International buyers) A large number of overseas buyer registrations in the early part of the year saw a flurry of viewing activity. Euro-zone buyers, particularly Italians, were much in evidence but as economies weakened on the continent, caution began to creep in. Momentum was taken up by home grown buyers who, having sold out of the market over the last couple of years, began to see long term opportunity.
House price forecasting is a minefield but we do have the advantage of being able to judge future supply against current demand. Today’s market appraisals are tomorrow’s instructions and while activity has been brisk in the apartment market, house appraisals have been more subdued. Current demand in all areas is better than we have seen for some time and the ratio of buyers to available properties is higher than we saw it at any point last year. This should support the recent recovery in prices.
Looking longer term, we are confident that London will retain its position as a key world financial centre. Many of the reasons for the wealthy choosing London remain unchanged. Few friendly and predictable tax regimes can match our city for beauty, cultural diversity, infrastructure and world class educational facilities. London is possessed with a fantastic, English speaking, skilled, creative work force that will be instrumental in the construction of a practical successor to the “tooth and claw” free market economics of the last decade.
The rapid house price inflation we experienced through 2005 to 2008 did result from a unique set of conditions, the combination of a worldwide financial services, asset and commodities bubble with London at its centre, but it was not our first property boom. Given London’s limited space and growing population, it will not be the last.
“It’s an ill wind that blows nobody any good”
By Roger Doncom, Head of Professional Services
Despite the troubled property market the Marsh & Parsons Professional Valuation Department has been busy this year assisting its clients with a variety of valuation work. In particular, the need for Tax Planning has increased. This is partly due to clients transferring both residential and commercial property assets to their beneficiaries in a bid to take advantage of some of the lowest values for some time. Also because parents are helping their children to buy a home by perhaps taking a share in the property as a medium to long term investment.
In addition, with the Banks offering minimal returns, investors have sought valuations from us to acquire both commercial and residential property which, with these deflated values, show a return well in excess of most bank accounts. We have also been asked by tenants to intervene with landlords and attempt to re-negotiate commercial rents as the economic situation bites.
On a brighter note, the residential sector is demonstrating growing confidence and values seem to have stabilised over the first quarter of 2009 and it is now likely that the diminution in the value of a shorter lease will outstrip any fall in market value.
We have consequently started to receive more enquiries for residential valuations for lease renewals, lease extensions and collective freehold purchases. This interest is particularly true of collective freehold enfranchisement as the need to orchestrate a group of individuals requires a longer lead in time. Prospective groups of lessees are now keen to do the ground work in order to move quickly in response to any market movement.
We started with a cliché so let’s conclude with one… “If you hear the robins singing you’ve missed the start of spring”.
We are entering an interesting phase of the market place and it pays to be prepared.
Lettings: The Value of Solid Advice
By Ruth Harrington
Following the Easter break, Marsh & Parsons saw a 30% increase in the number of people looking for rental property and we expect this seasonal increase to continue as we move towards the peak of the year’s lettings activity. Indeed we anticipate the Central London lettings market to remain buoyant until at least the beginning of November.
Landlords should feel reassured by a marked increase in property searches being registered with our Corporate Services department – an increase of 28% of prospective corporate tenants looking for property to rent in just two weeks. To attract corporate tenants at the best possible price, many landlords are also choosing to market their property as being professionally managed by the agent; something a growing number of companies require or request when selecting rental properties for their staff relocations. Landlords are also beginning to listen to agents’ advice and are pricing their properties at more competitive levels. Tenants are slowly starting to understand that the huge rent reductions which have been commonplace over the last six to twelve months are now becoming a rarity as opposed to the ‘norm’.
Despite rental prices being down 5-30% in the first quarter of 2009 compared to the same period in 2008 (largely due to the surplus of rental property as a result of a more challenging sales market) we have noticed an increase in tenants moving within the Kensington & Chelsea and Westminster boroughs, as tenants find they are sometimes able to find more space for less money. This, combined with the seasonal increase in activity means that overall demand is higher and as such, well-presented and appropriately priced properties are letting far more quickly. We are already seeing a number of competing offers on desirable properties which has in some cases, driven the agreed price significantly above the marketed level.
Over the past year, landlords have undoubtedly become far more aware of the increased competition in the market place, realising properties must ‘stand out from the crowd’ to achieve the best prices. As well as choosing a proactive agent to ensure the property is effectively and extensively marketed to prospective tenants at an accurate price, an understanding of market dynamics has meant landlords are increasingly focussing on the presentation of their property. It sounds obvious, but it is important to seek the support of an agent that not only gives expert valuation and presentation advice to their landlords but also one that attracts the best tenants; taking time to understand and listen to their requirements in order to ensure that the lettings process is as smooth and efficient as possible for all those involved.