Crystal ball gazing
Mon 04 Oct 2010
Making predictions can be a dangerous game, but Peter Rollings takes a look at what might be ahead for the London Property Market...
I must admit, I do feel nervous when I try to predict what is going to happen in the London property market. Of course nobody can actually know what is going to happen but I do think that if you work within a market every day, you must by definition have a good idea of what is really going on, and therefore be able to make an informed guess at what the future holds.
At this time of year, Im often asked (along with a number of other commentators) for my views on the property market and my thoughts on what is going to happen during the next 12 months. At the start of the year I wrote a piece stating that, in view of what I could see happening on the ground, I could see prices in London growing at between 5 and 7% during 2010. I am relieved to say that so far I think I am going to be about right.Obviously, along with this piece of judgment there has to be a large slice of luck as I am no more capable of accurately predicting the future than you are. However my reading of the market is that we have seen this growth already and that I dont expect to see much, if any, growth in the final quarter this year.
Due to the size of our business, the geographical spread of our offices and the sheer number of people we come into contact with on a daily basis, I believe we are well placed to gauge the mood of the market and make an informed judgement on which way it is goingin both sales and lettings. More importantly, by being 'at the coal face' we can see what is going on daily, weekly and monthly and can advise our clients accordingly. So, bearing all this in mind and with the usual caveats of events outside our control, this is what I think is going to happen (and in some cases is happening now) for the remainder of the year and into 2011.
We will see increasing numbers of properties come on to the market so that it will, after three years of low volumes, rise to meet its 15 year average. We will see lettings values continue to rise as less property becomes available to rent. This will correct itself over the next two years as the investor, or buy to let market makes a recovery.
London residential property will increase in popularity as a 'stand alone' asset class and larger numbers of corporate buyers will enter the market in expectation of healthy returns (rental income plus capital appreciation giving a gross return of circa 9% pa).* As a result, property prices in the capital will grow by around 5% in 2011 buoyed by an increase in return on investment, a relative shortage of supply of both second hand and new build, an increase of availability of mortgage finance and a general, if gradual, recovery in the economy.
Both overseas investors and homeowners will continue to be a major force in the market with Asian buyers, especially Chinese viewing London as the place to invest - (the emerging Chinese middle class can be counted in the hundreds of millions). This is driven by a mixture of hard headed investment strategies and the 'one-upmanship' of owning a property in London. Buyers and investors from India will become more prevalent and this will continue to grow over the next few years.
There has been much talk of 'double dip' in the past few weeks. However, let us not forget London reacted unusually quickly to the downturn in late 2007 with the market falling rapidly by up to 25%. It should not surprise us therefore that it was also the first area of the property market to enter recovery and enjoys a very different dynamic to the rest of the UKs property market.
London bears limited comparison to the general UK market and commentators who talk about 'the property market' going down (or up) do so at their peril!
*Source: Investment Property Databank