Market Review Newsletter (Notting Hill, Holland Park, North Kensington & Brook Green)
Thu 17 Jul 2008
Security through quality
By Keith Gorny, Director
In recent weeks the headlines in the neatly arranged broadsheets of the Kensington Park Road newsagents opposite my office have been less about the global credit crunch and more about record oil prices, increasing food prices and rising inflation.
After months of unrelenting crunch reporting do Wapping and Fleet Streets editors believe the newspaper buying public are just bored of this flavour of gloom or can we dare to believe that we are through the worst of this particular financial crisis? While the golden age of amazingly cheap, widely available debt appears to be over, there are signs that the radical steps taken by government and central banks all over the world have steered us away from a collapse of our wider financial systems.
Despite contrary reporting there are tentative signs of stability with talk of the negative equity crisis having been overplayed. Fewer people bought at the height of the market than last time round and those that did on thewhole had larger deposits and appear better able to sit things out. Defaults are low. Banks do appear to be raising capital so they can return to the business of lending and recent employment data in the UK isencouraging. Investors are buying up discounted risky mortgages and in May our Notting Hill office saw a dramatic improvement on the previous month in the number of house sales agreed with a value over 2.5 million. This could be a false dawn; sensational headlines may start reporting on the negative impact recent banking turbulence is having on the wider economy and in particular the housing market. Some commentators maintain that ultra cautious lending will dampen consumption and growth resulting in job losses and a free-fall housing market. Our view is that whilst the availability of credit in the country as a whole is onerous, in London, where the majority of buyers have a sizeable deposit, the effects are less pronounced.
The market hassplintered further over the last couple of months. What may be reported and true of the housing market as a whole does not necessary reflect our local market or the micro markets within it. Recent deal activity at Marsh & Parsons suggests that our local market has found its base. As previously, this review will briefly assess recent activity in our immediate area before considering the factors likely to determine our markets trend going forward.
The environment is not as disastrous as some would have you believe, recent performance at Marsh & Parsons suggests there are some good reasons to be cheerful.
The last couple of months: Keeping it in perspective
The financial sector continued to endure a painful 2008 with higher operating costs and sharp falls in profitability threatening jobs in many sectors. While this was not universal (according to City focused recruiters, the insurance and pension industries have seen starting salaries jump by more than 10% over the last twelve months and competition remains fierce for top financial talent) property buyers emanating from the financial services sector were certainly fewer in number than in preceding Spring markets. Many buyers adopted a wait and see attitude hoping that prices would move towards them. The net effect was a stand-off that resulted in a fall in transaction volumes across all price bandings.
Falling activity was reported nationally as the Credit Crunch continued to affect confidence in the wider market. Mortgage approvals plummeted as lending criteria continued to tighten. Land Registry reported that sales volumes in February were 34% lower than in the same month in 2007 (however, please remember, this was a boom time), the slide in activity was most pronounced for the least expensive properties. Three interest rate cuts could not prevent the cost of mortgages from rising as UK inter bank rates remained high at around 6%. Lenders responding to the worsening conditions in the money markets raised the cost of mortgage loans and tightened up on lending criteria. Its estimated that more than 10,000 products have been pulled since the credit crunch struck last summer.
Desire for ownership may remain but if buyers cannot arrange to pay for property, the market will not be supported. In less equity rich markets, values are as much about the demand and supply of property as they are thedemand and supply of credit. We have the advantage in our area of not being constrained in the same way or by such a degree. Recent analysis conducted by Experian reported that Notting Hill Gate has the lowest loan to value ratio in the U.K. at just 26%. Having such an abundance of cash rich buyers and vendors our market is far better placed to resist further falls in value. The financial services sectors practical withdrawal from our market and the general fall in consumer confidence had a clear impact on year on year values which slipped by as much as 15% in April to what we view to be their current sustainable level.
While for the most part the market continued to be hit by a series of big negative events there was some positive news around. Spring brought the budget and Capital Gains Tax was confirmed at 18% making property investment one of the most tax efficient investment vehicles in the UK. Bowing to pressure the chancellor watered down tax measures for Non-Doms and, most significantly, disclosure requirements. The increase in property supply and additional downward pressure on prices that may have resulted from earlier proposals did not occur.
However, enthusiasm is not enough to generate confidence. In achieving sales, it is crucial that agents provided buyers with a positive perspective grounded in facts. Despite what the doom mongers may profess, the fundamentals that support the housing market remain: low unemployment, historically low interest rates, a pent up demand for houses and a continuing and increasing lack of supply.
Now: Reality and activity
As we moved into the summer, Marsh & Parsons central offices reported that transaction levels for properties
of a value less than 2 million fell by 41% against the same period in 2007 (a figure in line with a recent RICS report on the wider market). With the fewer, cautious buyers in the market requiring value against last years prices and with resistant, target driven vendors preferring to rent out their properties if their prices were not met, transaction levels remained low.
More recently, vendors have seen values adjust further up the ladder and recognising the benefit of trading up through this market are seizing the opportunity and are pricing to make things happen. Buyers are beginning to recognise that the unrelenting negative commentary of the last couple of months may have manifested in an over-correction and there are some great buying opportunities around. Quality at the correct price is now moving fast. As an example, we have just exchanged contracts on a first floor flat on Craven Hill Gardens with a buyer who first saw the property four days previously. An equity trader who bought in cash offered some advice as he picked up his keys with a broad smile buy at the moment of greatest fear!
Properties at a price over 2 million are now proving to be far more liquid. Our NottingHill/Holland Park offices reported a 33% increase in the number of transactions conducted over the last month when compared with the same period in 2007. Equity rich buyers taking a longer term view are being encouraged by reasonable vendors offering value against last years prices. Vendors who had seen as much as 60% capital appreciation in their houses over the last few years have been more prepared to adjust by the ten to fifteen percent needed to create demand. At this end of the market we have seen a rapid correction rather than a protracted slide in values. With vendors and buyers responding to good advice we are enjoying brisk business and a return to transaction volumes similar to 2006.
Going Forward: Opportunity
While confidence and interest rates have an influential role to play in determining housing market activity, the governing factors in the wider housing market are job prospects and job security. With some analysts predicting that 40,000 jobs will be cut in the City as a result of the Credit Crunch, the industry is facing its most negative
employment outlook for five years. Given our areas association with the financial services sector you might be forgiven for thinking the prospect of a property crash is high.
However, having just experienced a sharp price correction that resulted in a significant increase in activity, we are confident about the prospects for our area and the sustainability of current property values. Given the extraordinarily high level of equity in our local property market it is understandable that there is no evidence of the distress selling needed to fuel further falls. Our area is a high quality location where there is always demand for accommodation. If people are not buying, they are renting and this provides owners with an alternative option to selling below their target price.
A favourable time zone, adaptability, language and solid infrastructures have helped London establish itself as one of the premier financial cities in the world. However, it is also a centre for many other activities. Unlike the US, the UKs broad spectrum of professional activities are pretty much all based in London. Multi-National Blue Chip firms, the Legal Profession, Politics, Media and the Arts all enjoy being centered in our culturallyadvanced, exciting Capital. While turbulence in the financial markets has had a definite impact on residential values, Londons rich variety of professional activities provides us with a diverse pool of buyers that helps to insulate the Central West London property market from a down turn in any one sector.
The International Monetary Fund predicts world economic growth at a healthy 3.7% and 3.8% over the next couple of years. The balance of global growth has shifted somewhat away from the advanced economies of the West to emerging and developing economies. Attracted by our secure political environment and relatively benign tax laws this newly created wealth in the form of sovereign wealth funds, petrodollars and the rest, continues to fuel our internationally renowned market. There is always someone somewhere in the world making money and a home in London, made all the more attractive by a weaker pound, is more often than not high on their shopping list!
One thing is clear; this is an excellent opportunity for good Estate Agents to bring real value to the sales process.With the media no longer assisting a positive environment, Agents need to create buyer confidence in their clients property values through qualified argument, local knowledge, enthusiasm and exceptional service. More challenging conditions demand tailored marketing campaigns run by determined, experienced and adaptable Agents.
A traditionally busy market: Lettings of course!
By Emilie Dawes, Lettings Director
Were now entering what is traditionally the busiest period of the Lettings Market year. The end of the graduate year and school year heralds the commencement of many first jobs or relocations as the annual recruitment drive of many London based companies starts in earnest. This cyclical activity further contributes to the brisk business we have enjoyed and continue to enjoy this year. While there has been an enormous increase in the amount of property available to rent this year, the number of tenant registrations has also increased significantly. Property in immaculate condition and that is priced accurately is being snapped up, sometimes even going in excess of asking price. This said, tenants have huge choice and landlords need to appeal on price and/or condition or be left behind. While there is already a large amount of activity in all price ranges it is important to recognise that your property is competing in a well stocked market. In this market your best offer could well be your first offer so be ready for it! Theres nothing worse than sitting in a quiet market regretting the offer you didnt take in the summer.
Tenants are attracted to properties that present the least amount of hassle. The deciding factor between two otherwise equally matched prospects will often be the sense of security tenants derive from knowing a property is being professionally managed. Unfinished works and unattentive management can create doubt in a potential tenants mind, they will quite simply move onto their next option.
We cast the widest possible net in pursuit of securing the ideal tenants for our clients. Our highly experienced, dedicated Corporate Services Department has developed and maintains exceptional relationships with blue-chip companies, the Financial Services sector and the legal sector all of which provide our clients with a rich supply of high quality tenants. Corporate works superbly in conjunction with our fully integrated office network. Furthermore, people searching for property to rent are able to view our entire register through one Marsh & Parsons negotiator. This unique infrastructure allows us to provide a consistently high level of service and to develop positive relationships with tenants, all of which is of huge benefit to our clients.