Quest for income drives investor interest in the housing market
Sun 29 Jun 2014
Property has seen a significant jump in net retail sales in the past few months, as more investors are turning to the asset class in a search for income and also boosted by increasing property prices. Latest figures from the Office for National Statistics April House Price index showed that the cost of property in the UK rose by 9.9 per cent in the 12 months to April 2014, which is the highest annual increase in UK property prices since May 2010. In addition, house prices in England rose to 10.4 per cent in the 12-month period, mainly driven by the London property market, which according to the ONS, means England is the only UK country where property prices are now higher than the pre-financial crisis peak of January 2008. The combination of government initiatives to get people on the property ladder and encouraging more banks to lend, along with low interest rates, has helped boost the property market. But with the Public Accounts Committee recently noting that the governments Help to Buy initiative violated Treasury guidelines, and the introduction of the Mortgage Market Review for tighter lending criteria, there are attempts to dampen what could realistically become a property bubble. Peter Rollings, chief executive of Marsh & Parsons says: The growth rare currently being experienced in the London property market is eclipsing the rest of the UK. With its international appeal as a sanctuary for capital investment, and its allure as a vibrant city to live and work in, the level of demand for property in London is unparalleled across the rest of the country. But weve reached a turning point. After a very lively start to the year, where an acute lack of supply and subsequent competition for homes pushed prices higher, were now sailing into steadier waters. Stricter controls for mortgage affordability and the renewed housing stock is moderating the market and property price growth has slowed. London is not representative of the broader nationwide picture. If the government or the Bank of England were to slam their foot on the brake too heavily, they risk settling back the emergent housing market recovery outside of the capital. For most investors, the choice is between direct property and indirect property funds, which mainly invest in the commercial, retail and industrial property sectors. However, the boom in UK housing certainly helps to buoy confidence in the wider property sector. Figures from the IPD UK Monthly Property index show that the sector delivered a return of 16 per cent for the 12 months to May 31, with the office sector posting the highest return of 21.4 per cent. Meanwhile, industrials delivered an equally strong performance of 20.7 per cent, with the retail sector trailing some way behind with a return of 11.1 per cent. But with the governor of the Bank of England, Mark Carney, hinting in June that UK interest rates could rise by the end of 2014, albeit gradually, and with growing pressure on the government to try and cool the UK housing market, there is a fine line to tread between preventing a bubble and damaging the countrys economic recovery. While property may be in favour now, investors would be wise to learn from the financial crisis and be prepared for any macro changes.