15/10/2007
What do estate agents think of the property market?
I'm still in the messy stages of renovating a house and I frequently brush plaster dust out of my hair and wonder what the current obsession with owning property is all about. Then, as I grimly trudge back up the stepladder with yet another tray of magnolia emulsion, I remind myself - it's a good investment. Or is it?
Unlike other forms of investment, property isn't tucked away in a bank vault or reduced to a symbolic set of figures on a piece of paper. Property can be seen and done up, often like people like me who are blissfully unaware of their own folly until it's too late.
But the property market isn't all rambling roses around the cottage doorway.
The Halifax reports that the UK property market is showing signs of struggling, with a 0.6% drop in house prices in September. The biggest fall since last December, it pulled annual house price inflation down to 10.7%, its lowest level since May. However, Halifax said, house price growth had actually been slowing since the end of 2006, with prices rising by just 0.9% during the third quarter of the year, down from a gain of 2.3 % in the second quarter and 3% during the first three months of 2007.
Is the property market still a good option - and if so, for whom? I began by asking Myak Homberger, marketing director, Ezylet (www.ezylet.co.uk). He explained: "Buy-to-let property investment has become extremely popular in recent years, attracting many first-timers as a way of supplementing their income or pension arrangements."
According to a new Ezylet survey, landlords who own and manage their own properties have an average of five domestic properties in Great Britain. Of these, 36% have two or three properties and 28% have four or more. Unfortunately, a fifth of landlords in Great Britain (20%) would seriously consider selling one or more of their property investments, or invest overseas (19%) if the British interest rate were to rise above 6%.
Investment made by buy-to-let landlords has a valuable knock-on effect on the general improvement of property in the local area, and in the local communities themselves, and many landlords are starting to see it as a more long-tem proposition.
Dean Sanderson, managing director, Sanderson James Estate Agents (www.sandersonjames.co.uk) agreed: "The buy-to-let market in Manchester up until now has been really good, but again, prices have leaped so high that a lot of stuff is not stacking up. The lenders will have a stipulation that it's got to cover 130% of the mortgage payments, but if you bear in mind that we've had over five interest rises in the last 18 months, they're not covering it now, so the market is slowing down. I don't think it's a bad time to get into buy-to-let as long as you're sensible and you've got a few quid left over at the end of the month in case you've got a quiet period. You've got to go into it now on a long-term basis."
The Royal Institution of Chartered Surveyors (RICS) spokesman, Jeremy Leaf, said: "Current economic uncertainty has created an ideal platform for buy-to-let investors to cash in on rising rental levels."
According to the organisation, the increased demand for rental properties has pushed up rents at their fastest pace on record in the three months to July 2007.
In spite of all the recent new-build development in Liverpool, Jonathan Kennedy of Knight Frank UK (www.knightfrank.co.uk) is optimistic about the effects of an investor-led market for general residential lettings and is confident that there is no oversupply of properties. Speaking from the company's Liverpool residential development department, he said: "To a lesser extent, everything is selling, whether it's to investors or own occupiers but there is obviously great benefit in seeing all this residential development in the city, specifically in buildings which have previously been disused for decades and have fallen into a complete state of disrepair. The market in Merseyside in terms of city centre development has matured."
The city was nominated for the capital Europe-wide initiative, Capital of Culture, for 2008. "There is a hell of a lot going on in the run up," said Jonathan. "We're hoping to see more and more investment into the city. There are a lot of new developments and a lot of the old buildings around Liverpool are being refurbished and a lot more are earmarked for after 2008."
In beautiful Cornwall, David Sanderson of Liddicoat Sanderson Estate and Letting Agents (01726 69933) is also optimistic about the regeneration of his area and the ensuing business benefits.
"I think St Austell is definitely on the way up. Now with Newquay Airport, people in the City who just want to come down for a weekend surfing and buy a bit of a pad down here with their annual bonus, can fly to Newquay, have a weekend and fly back on a Sunday. There are lots of other smaller developments and with the regeneration of the town itself, £60-£80m is being spent on the town centre, it might be a good time to buy around St Austell. Our financial year finished on 31 July and we were up about 25% from the previous year, but I don't think this year will be anywhere as good."
According to Robert Leigh, director, Devono, (www.devono.com) the only commercial estate agent in London to exclusively represent tenants looking for office space to rent, the City link is also important.
The commercial market is a very strong market for landlords and it's almost been a case of landlords dictating what terms they want to quote. And if you particularly talk about the West End, there's been a huge influx of people within the hedge fund industry that aren't so much budget-orientated, and sometimes it's a case of they want a secure place and they'll do whatever they can within the necessary means, and what some of them fail to realise is that, like everything else, deals are based on comparable evidence and hedge funds only make up such a small percentage of the office marketplace but they have a huge impact on rents that have been achieved and that's really what's been driving the rents up so much ultimately.
The recent credit crunch scenario has had more of an impact on the investment markets and created uncertainty. I think more than anything, landlord's confidence has been slightly dented. I imagine that the office market may not resume back to normality but I can't see there being a detrimental effect on office rents.
Away from London and the effects of its hefty bonuses, it is a slightly different story.
Figures from both Nationwide Building Society and Halifax show that prices in the capital rose rapidly during the summer.
Miles Shipside, commercial director, rightmove.co.uk (www.rightomove.co.uk) said: "Price rises have past their peak for 2007. The record price levels seen so far this year were driven by Greater London and the south of the country. With that market cooling, the credit crunch and the signal from the Bank of England that interest rates may move up again, sellers may have to be more flexible with their price expectations. Underlying demand for property is still strong and should mean that volumes of sales pick up during the autumn."
Source: rightmove.co.uk
Dean Sanderson adds: "I don't think we're going to have a crash but I think the housing market is going to slow down. I've spoken to a lot of professionals in our industry and they know deep down its going to affect them. The HIPs thing has slowed the market down a little bit, but it's not going to affect the market too much yet because agents are still putting the properties on the market, but we've got HIPs that we've applied for two or three weeks ago that still haven't come through. What we're doing is we're complying with Europe. England seems to be the guinea pig for everything and we just go along with it. The consumer is eventually going to pay: it's just another tax in my view. We've got a shortage of housing in the UK as it is, so why slow the system down and make changes that people don't know about and is going to cost everybody money?"
As chairman of the Lancashire and Cheshire National Association of Estate Agents (NAEA), Dean hears the same view from his members: "In my area, Lancashire and Cheshire, members feel as a whole that the introduction of HIPs was a bad idea. It wasn't thought through and we weren't really involved in the negotiating. I think the government have just taken their own view on it, and of course, there's another agenda: there's all that VAT, all the income they're going to generate from it. But who's paying for it? The consumer at the end of the day and let's face it estate agents aren't the best liked profession in the world as it is, and customers think HIPs is down to us."
Overall, however, business isn't too bad.
Figures recent released by The National Association of Estate Agents (NAEA), note that the number of people looking to purchase a home improved slightly in August 2007, with agents reporting a rise of 3.8% with an average of 326 buyers registered on their books in comparison to 314 recorded in July.
RICS on the other hand believes that high prices have discouraged many potential buyers, quoting: "Deteriorating accessibility, tight supply and a slowing housing market is keeping would-be home buyers in the rental sector, with many adopting a wait and see approach."
Maybe it's time for a cultural change and a move over to renting which would benefit investors and home-seekers alike?
Jonathan Kennedy sees the sense in this idea, certainly for Liverpool: "I see in Liverpool, specifically, the market turning into more of a European-style market where people aren't obsessed with purchasing the property and are happy to rent in order to live in the city. As long as you're seeing apartments let, you're seeing massive amounts of regeneration within the city which was drastically in need of it. The night life is fantastic in the city and we're seeing more and more commercial occupiers now, creating lots of jobs, so it's very much a thriving city."
Source: National Association of Estate Agents