PROPERTYdrum celebrates the end of 2009 – one of the hardest in living memory, and asks its readers their view of 2010. The only way is up!



RESIDENTIAL SALES

Election could cause a hiatus says Yolande Barnes, Head of Residential Research, Savills. “Recent price movements have been exacerbated by a lack of stock. However, we expect more stock to come to market in 2010 just as the pent-up demand from cash and equity rich buyers becomes sated. There are very few signs that mortgage markets will ease over the next 12 months and there is a significant risk that mortgage dependent buyers will be unable to return to the market in sufficient numbers to maintain current price levels. This could create a void in the mainstream market (from a fall in activity due to the election) causing a hiatus in the market recovery.”

“In the short term, we are facing events with the potential to discourage house purchases”, says Lucian Cook, Director, residential research at Savills. “The uncertainty preceding an election – the prospect of public spending cuts, higher taxes, continuing mortgage rationing, further unemployment, possible stock market correction, inflation or future interest rate rises – all have the potential to impact the mainstream, even if the precise timing is difficult to pinpoint. However, any price falls in the coming year will be contained by the relative affordability of housing which is firmly underpinned by low interest rates. As a result, mainstream markets are forecast to fall by no more than -6.6% in 2010, and at no point will they reach the lows seen in Q1 of 2009.”

We’re on thin ice says Louise Hewlett, MD at Aylesford International “2009 ends with the graph at the highest point in the year, however confidence is based on thin ice and we are still in a full recession. Inflation followed by a rise in unemployment is a big economic issue and there is no guarantee the election will give the result we need. The exchange rate of the Pound to Euro presents an excellent opportunity for foreign investors and we are already seeing more Italian buyers. This will give strength to the investment market and create additional rental properties, which due to the current over supply, may reduce rental values. There is a pattern emerging of overseas buyers from Europe, the Far East, Russia and India, taking advantage of the situation.”

We have faith says Gary Hersham, Director, Beauchamp Estates “Activity in viewings in the central London residential market has increased. Most agents are very busy and we will see not only an improvement in the market but an increase in the number of deals. Our market is central London – Belgravia, Knightsbridge, Holland Park, Chelsea, Kensington, South Kensington, Hyde Park, St. John’s wood and Hampstead. We have faith that all price ranges here will see an increase in both value and turnover not only because of the investment potential but there continues to be a lack of stock and we predict that the number of willing purchasers will continue to increase.”

Bricks & mortar still in favour says Camilla Dell, Managing Partner, Black Brick Property Solutions Whether prices rise or fall depends on what happens to interest rates, mortgage availability and unemployment. In London, once interest rates start to go back up, we may see a large number of properties come onto the market, and this could put a stop to the recent price rises. However, it could be quite some time before interest rates rise. Bonuses are also due to be significant in the city for several financial institutions, and some of this money is bound to be spent on property. Investors still seem to favour bricks and mortar over other investments and its difficult to see demand easing.”

A long way to go say Carter Jonas, Catherine Penman, Head of Research and Tim Macpherson, Head of London residential: “Although we are benchmarking September 2009 against the month in 2008 when Lehman Brothers collapsed, our 90 per cent rise in completed sales is significant and reflects a growing confidence. The volume of properties under offer is increasing all the time, which suggests that market activity may well increase towards the end of the year.” Catherine Penman adds, “Whilst these figures provide a positive outlook on the market, there is still a long way to go until the market returns to full health. Once vendors are more confident and the supply of good quality stock is replenished, demand is likely to increase because at the moment it is a vicious circle in terms of limited stock restricting activity. However, we project this will be unlikely to occur until spring 2010 and the market remains precariously balanced."

The World Cup and the election will impact on the market says Robert Scarff, MD, Countrywide. “2009 has been a year of returning confidence in the property market, house prices have stabilised and we have seen applicant enquiries increase by 66 per cent. We anticipate 2010 to build upon this. However, the World Cup and the Election will impact on the market, particularly as the Conservatives promise to scrap HIPS – this could lead to a shortage of properties. We are mindful of rising unemployment, stringent financial conditions, the high deposits required.”

Lending edges up says Douglas McWilliams, CEO, the Centre for Economics and Business Research (CEBR): “Some commentators believe that house prices will dip again in 2010 and 2011 on the back of rising unemployment and weak economic growth. We believe that this view ignores other factors that are pushing prices in the opposite direction. Mortgage conditions have improved substantially and lending continues to edge up. With base rates on hold, mortgages will remain relatively cheap. Furthermore, the supply side of the market will remain tight into the medium term – the shortage of property may be causing short term supply issues, but in the medium term the shortage of new building will also come into play.”

Prices will remain stable says Martin Bikhit, MD, Kay & Co “As we move into 2010 the market is likely to improve further. With interest rate increases likely and mortgage lending continuing to ease, it is probable that buyers will have both a greater choice of properties and more purchasing power. This combination, however, is most likely to mean that prices will remain stable for the next 12 to 18 months with modest increases after that. If the Tory government come to power, the most significant impact will be the abolishment of HIPs which have caused a barrier to putting a home on the market.”

Its not all gloom and doom says David Brown, Commercial Director, LSL Property Services “A sixth successive quarter of recession is not the news everyone was hoping for in the run-up to Christmas. But it’s not all doom and gloom. The economy is no longer nose-diving, but it hasn’t taken off yet. The rate of contraction has dropped once more, and in all likelihood, will be revised upwards. We are seeing clearer signs of recovery in housing than other industries. Prices may be picking up, and confidence may be heading back to the market, but recovery for both the housing market and the wider economy will be over the medium, if not the long-term."

Don’t expect the floodgates to open says Mark Parkinson, Middleton Advisors “In the country house market we expect to see stock levels remain the same and certainly don’t expect the floodgates to open and there to be a rush of stock on the market. There will be new instructions, but vendors are likely to be those who have already committed to a move – out of London, downsize, upgrade – or out of necessity. The core of buyers will remain cash buyers. Nobody is under the illusion that we are out of the woods yet.”

A sellers market Tracy Kellett, BDI Home Finders: “In 2010 we will see a further increase in interest from foreign buyers as exchange rates remain favourable and prices in central London remain sensible. First time buyers will still struggle with financing. Higher LTV than 75% will be unlikely, which will have a particularly detrimental effect. It will be a relatively stable market in 2010, but there’ll be more ‘bullish’ valuations to ‘buy in’ vendors. Welcome to 2010, the sellers’ market.”

Current uplift is temporary say Jason Siviter of Kingston & Grist Estate Agents “We are all hoping that 2010 is going to be an improved market from 2009. However, lending institutions, although better than 2008, still have a long way to go in making funds available and it could stifle the recovery. The current uplift in prices and sales is a temporary and artificial reaction to the supposed bottoming out of prices. With a shortage of properties coming to market we may see things tighten again in 2010. Investors are keen to move back into the market and are looking to purchase on the back of optimism for price increases next year. If prices stagnate then investors may retreat out of the market place again, leaving a gap at the mid to lower end.”

Another difficult year ahead says Matthew Sinclair, Director, Saint Property “2010 will be another difficult year. There is always apprehension when an election is on the horizon, and the UK has historically high debts. We can expect to see an increase in taxes and unemployment as well as pay freezes. The underlying trend will continue to be downward pressure on property prices across all sectors. Income generation will be key for 2010. The top end of the housing market will be hit hard again, and more property will become available – some of which hardly ever changes hands.”

A fractured recovery says Robert Bartlett, CEO Chesterton Humberts: “Our latest price Poll of Polls supports our belief that the property market will experience a fractured recovery, with the London market and the top 20 per cent of properties by value continuing to increase more rapidly than other areas and lower value properties. In London, where the market dropped 30-50 per cent, if currency fluctuations are taken into account, recovery has already begun, with some areas already achieving 2007 prices. This has been driven by foreign purchasers who continue to benefit from the weak Pound. In other parts of the country, recovery may take longer but the outlook is generally more positive.”

Buyers are returning says Robert Leigh, MD, Featherstone Leigh: “Prices have stabilised, and although still sensitive to the current economic climate, they are achieving values last seen in 2007. We have seen an increase in the number of applicants with ability to buy, but not yet reaching those peak 2006/7 levels, possibly due to the current mortgage restrictions, which I foresee easing in the New Year. In contrast to earlier this year, buyers are now returning with confidence. They believe prices are fair, and so offers are reasonably close to asking prices. More sales are reported as agreed in excess of asking prices due to the shortage of properties."

People will want to get on with their lives says Stuart Flint, Fisher German: “2010 will be very different from the past two years. The residential property market has been through turmoil and in many places difficult trading conditions persist but the outlook for next year is quite different in my opinion. Provided interest rates stay at modest levels in a low inflationary environment I think we will see a significant increase in transactional volumes as people seek to ‘get on’ with their lives.”



AUCTIONS

Stock shortages to continue says Chris Baguley, Auction Finance Limited “Stock shortages have been a feature of 2009 as sellers resisted putting their property on the market. This has exacerbated price rises, but this will stabilise towards the middle if 2010 as confidence starts to return and property is put onto the market. After Christmas there’s always a lull in activity and prices are likely to dip slightly as unemployment continues to affect consumer confidence. I don’t expect a lot of movement next year – perhaps some stabilisation and modest appreciation towards the end of the year if interest rates remain low and lenders become more willing to lend.”


LETTINGS & INVESTMENT

It’s a buyers’ market says Tom Nicholson, Fixed Rent “With the UK economy in recession and the job market the worst for many years, unemployment is high and school leavers are finding it more advantageous to go to university than look for work. There will be a rise in the number of student rentals while prices look set to say the same until we are out of the recession. Property prices remain low and it’s a buyers market.”

A new breed of tenant says Robert Leigh, MD, Featherstone Leigh: “After a meteoric increase in activity from 2007 to 2008 by 30 per cent, rental values softened in the first nine months of 2009 in response to high levels of available property. However, as this year progressed, the volume of transactions soared, which has reduced supply and resulted in increased rents. A new breed of tenant has contributed to this; people who sold their property and are planning to upgrade, but due to limited choice, are biding their time before re-entering the market. We see sustained activity right through until a month or so before the Election, when we will see the market quieten. After that, business as usual.”

We’re at a crossroads says John Hards, Co-Managing Director of Countrywide Residential Lettings: “The rental market is at a crossroads, the economy is fragile and unemployment is still rising. We are already seeing the first signs of rent increases due to strong tenant demand, and this looks set to continue, which offers landlords and buy to let investors’ new opportunities to capitalise and increase their rental yields.”

Rental prices could go up by 10 per cent says Stuart Law, CEO of Assetz: “There are likely to be some winners in the rental market next year, especially in city centres. There is substantial undersupply of quality accommodation in the key city centres such as Manchester and Birmingham and this could well drive rental prices up by around 10 per cent next year as any remaining stock is soaked up. These rent increases, which we expect to continue in the face of limited supply, will help insulate landlords from the rises in interest rates over the coming years.”

It’s all down to borrowing ability says Caroline Kavanagh, Group Lettings Director of Badger Holdings. “Next year’s activity will be governed by borrowing ability. Investors, who already have solid portfolios, are unable to purchase more properties due to lack of lending. Interest rates will not start to rise yet, when they do, maybe in the middle of 2010, it will have an effect on the lettings industry. For anyone looking to upsize, it could prevent them moving out of their current property and letting it rather than selling. Potentially, this will squeeze instructions, but it may encourage more people to look at renting and it will certainly sway people into staying in their current rental property. We will need to consider ‘tenant history and affordability".



COMMERCIAL PROPERTY

“By September 2009 the recession cost UK commercial property 44% in lost capital value in the most rapid decline on record and, according to forecasts, it will be 2011 before the recovery gains serious momentum. However, what sets this apart from previous recession is the scale of the stimulus, most notably quantitative easing, thrown at the problem with a further £50 billion extension of this programme showing the aggressive stance by the Bank of England to break the momentum of decline. The commercial property market, along with other sectors turned a corner showing signs of improvement in mid 2009 and renewed confidence for the first time since the crisis levels of 2008 but there have been consequences of the recession. Specifically, a yield driven collapse in capital values led by the credit crisis saw both a direct impact on effective demand and deterioration in sentiment.

"Following signs that the crisis is over, sentiment improved markedly in 2009 and commercial property is now offering good value compared to the cost of borrowing and return on bank deposits. In some locations, particularly those that attract international investors, yields are hardening, albeit partly attributable to the weakness of sterling. However, access to credit is still an impediment and there are potential major issues with the amount of commercial property loans due to mature over the next couple of years, many of which are in distress or breach of covenant.
Despite the drastic decline, property has still performed well against other asset classes over the last decade.”