There has been a recent rise in the number of agents reporting an increase in available properties, to 15 per cent from -20 per cent, described as “the first sustained shift towards supply for two years”.
While market indicators are consistent with further house price increases, recent gains have been attributed to the lack of property available. Lower interest rates, better mortgage deals and patience from lenders has meant that more homeowners have been able to stay put during the recession, rather than being forced to sell. As prices have increased, homeowners have put their properties on the market, which may have contributed to February’s price fall, along with the end of the stamp duty holiday and bad weather at the start of the year.
Price falls have been reported in Yorkshire and Humber, the West Midlands, Wales and the North.
The most coveted of prizes for all estate agents, property developers, and house builders is the “first time buyer”. It looks like this increasing rare breed has been almost hunted to extinction, the use of a devastating weapon is the main reason for the high numbers culled in their infancy. This most effective weapon is of course “tighter lending criteria”, when in the hands of a well trained banker this weapon can devastate a huge number of first time buyers before they even make it to the estate agents window.
This is probably why we now have the lowest level of home ownership in the UK since 1991, so where have all the houses gone? Don’t worry they are still there but many have changed hands, the fall in the owner occupier market has been compensated by an increase in the private rented sector. Private landlords are now providing accommodation for those first time buyers who have been unable to obtain the mortgage funding they desperately need to obtain their first home.
Recent figures have shown that the average UK house price has dropped for the first time in recent months, missing the double digit inflation predicted by many. This falter comes after the end of the stamp duty holiday so there is evidence to suggest that the missing sales and higher offers have all been used up before the stamp duty holiday ended. The bank lending criteria has loosened but with the chance of an increase in interest rates, 2010 looks to be a great year for predictions with one thing for sure some of the pundits will be left with egg on their faces.
Joint venture property development are becoming increasingly popular as those who are looking to off load potential residential developments sites are finding it increasingly challenging to achieve their desired asking prices.
So land owners are looking to set up joint ventures with those that have the knowledge experience and track record of delivering past projects. The advantage of a joint venture is that you have a builder on board who is looking to save costs and push the project to completion to gain their share of the developer’s profit. The industry standard for this type of venture is often a 50 / 50 profit share with the land owner putting up the land as security and the developer or main contractor doing the construction or build phase of the project at cost. This helps with the project borrowing and banks are always keen to see an experienced developer or main contractor on the team. The days when banks were happy to fund first time developers are long behind us, and with the property developer funders having a choice of various deals to back, land and site owners are pleased to do a joint venture rather than see their site sold below market value.
Data suggests the number of new homes coming to the market could be at its lowest levels since 1923, this news comes as housing charities struggle to cope with the demand for housing in the UK. The increasing levels of repossessions and householders facing financial difficulties will further burden the waiting lists for houses.
The private rented sector is becoming an increasingly important source of affordable rental property as more and more people find it a struggle to obtain mortgages. It is a painful coincidence that the number of new homes coming on the market has also been restricted because of tighter criteria for property development funding.
Recent data released from Economists has been revised up to show expected higher capital gains from UK property investment. The expected increase in residential house prices has surprised many economists and property professionals. Many believe the increase in gross mortgage lending coupled with a low supply of suitable property is the main driving forcing behind increased house prices.
The lack of new build properties will also have a impact on prices as many of the house builders have scaled down new build developments in an attempt to cope with tighter lending criteria, as bankers and investors look for better yields on their development funding.
We have never had it so good! Well almost, recent data on the total performance of returns from property has shown that in the last quarter of 2009 total returns from property leapt to 10%. Just let me repeat that property returns 10%, considering where interest rates are there are not many investors who will complain about returns of 10%. The data showed that it was in fact the second highest rise since 1978. Yes that’s right property is performing at its near best since 1978!
Well that is the positive news, of course the usual caveats apply, it only reflexes one quarter’s results so over the more medium term the figures could show a very different picture. With rumours of no double dip being whispered in the city many will start to look for new doom and interest rates are a fare bet.
The increase in the Bank of England’s base rate will of course have a pretty devastating affect on the fragile UK property market. So this time next year what will we are saying about the decisions on interest rates that are the discussion of many back offices in the city?
The recent return to form of the UK housing market will lead to many property developers starting to flick through the auction catalogues and the local land agents listings for suitable building plots and potential re-development sites.
To go with their newly acquired building plot they will probably be looking to find suitable property development funding. With many of the UK’s main high street banks still cautious to provide lending for speculative property development. Many property developers will be looking at more creative funding options, with the use of mezzanine funding, profit share and joint ventures to assist with build costs and risk mitigation. This delicate recovery will see more use of special purpose vehicles to hold property developments as property developers look to merge their financial and skill bases to give them the flexibility to take on larger property developments. The other advantage of these commercial partnerships and alliances is raising the percentage of security required for the primary funding agents to make their primary charge a sensible level of security, this is essential so the primary lender can move on or re-finance against its loan books.
The world of house building and property development sites is awakening from its slumbers, there is the sound of the first tentative footsteps from the speculative property development funders. Land agents are starting to dust themselves down and pick themselves up after some of the knock out blows that the down turn in the property market has caused them.
Property and land deals are starting to be put together with the usual collaborations and joint ventures from the banks and funding agencies with property developer’s builders and main contractors. Land agents are starting to enjoy their finder’s fees and the professional fees for architects, commercial surveyors, and conveyances are starting to flow. Many of the professionals within the property sector are looking to build back there reserves and to recruit new staff. The designers and estate agents are watching for the first signs of new build properties coming to market.
The many private investors and investment consortiums are starting to flex their muscles after a long and unwelcomed break. The banks and development funding agents along with auction and bridging finance houses are starting to talk to the secondary and tertiary lenders to see if property deals stack up.
There are design statements, feasibility studies, and development appraisals being written with bankers and lawyers starting to prepare joint venture and funding contracts, project meetings and property development negotiations taking place and soon there will be site clearances, demolition, and ground works taking place. The companies that complete the preliminaries, main contractors and sub contractors will start to see their contract managers and quantity surveyors busily preparing tenders documents. Soon there could even be builders building, is some normality returning to the property development and property sector?
There have been some very high profile professionals from the property sector who have put their reputation on the line and predicted positive growth for 2010. There are also other positive signs with many of the clever fund managers predicting that there is no bubble. Could this now be the first signs of the property market returning to historic levels of sensible and steady positive capital growth?
So as always with investments once more and more investors have convinced themselves that now is the time and they are on to a good thing, the cash and funding will start to flow in and balance the recent high returns from the best performing property funds.
