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Income producing potential of UK property set to top the agenda for investors in 2016
The income producing potential of various property asset classes is expected to be top of investors’ agendas in 2016, according to a new outlook analysis report. Average UK house prices are set to rise 5% in 2016, but the speed and timing of interest rate rises will dictate the pace and sustainability of price growth, according to the predictions from real estate advisors Savills. In the commercial market, average total returns on UK property investments are likely to slow to approximately 7.5% while in the agricultural market Savills has downgraded its forecasts for the next five years given recent market evidence and the short to medium term expectations for commodity prices and therefore farm profitability. The firm says that income and the ability to unlock the latent value of individual assets through active management are likely to be priorities, due to the current stage of the property cycle and the medium term prospect of interest rate rises, regulation and tax policy in the residential sector, and the outlook for commodity prices in the agricultural sector. In the commercial and residential markets Savills expects a shift towards investment in regional markets, given where recent capital growth has left yields. The referendum on membership of the European Union (EU) presents the greatest uncertainty for UK real estate in 2016/2017, according to Savills, as the outcome has potential implications for all three sectors. The prospects for a pre-referendum investment slowdown may well depend on how close polling companies believe the outcome will be, the report suggests. The report explains that annual house price growth stood at just 3.9% at the end of October, with annual housing transactions appearing to have peaked at 1.2 million per year so the forecast for 2016 is 5% for average UK house prices. It points out that stamp duty changes have left the top end of the London market looking both fully priced and fully taxed suggesting a further delay in the return to trend rates of house price growth. Meanwhile, the mainstream market is more dependent on what happens to the cost of borrowing. ‘Capacity exists for short term price growth if rate rises are delayed further, but rising interest rates will squeeze affordability, making house price growth dependent on earnings and the pace of economic growth,’ the report says. It adds that in some areas in London, for example Ealing, Acton, Greenwich, Lewisham and Waltham Forest, may buck this trend as they attract more affluent buyer groups. Attractive commuter towns will also continue to offer good medium term price growth, particularly where travel times are shortened by rail improvements. Also demand for private rented accommodation will continue to rise. The restriction in tax relief and additional 3% stamp duty charge for buy to let landlords may result in rising private rents and shift investor focus towards higher yielding sectors of the market, particularly key regional cities, it suggests. While Government policy… Continue reading
London borough of Newham sees biggest urban house price rise in UK in 2015
Newham in London recorded the biggest percentage rise in house prices among major UK towns and cities over the past year, according to new research. The average house price in the London borough was 22% higher than in the previous year, increasing from £261,399 to £319,522 in 2015, nearly double the 12% increase in London as a whole. The research from home lender the Halifax, based on its own figures, also shows that Royston in Hertfordshire experienced the second biggest rise in average house prices with an increase of 19%. And all 10 top performers were in London and the South East. Stroud in Gloucestershire, Wellingborough in Northamptonshire, and Solihull in the West Midlands were the top performers outside London and the South East, recording price rises of 14% to 15% over the past year. A small number of towns recorded modest declines in house prices 2015. Prices in Merthyr Tydfil in South Wales fell 3.8%, in Colwyn Bay in North Wales they fell by 2.3%, while in Durham prices were down 2.1% and in Coalville in Leicestershire down 0.5%. The 10 worst performing towns are outside London and the South East with the exception of the country’s most expensive area, Kensington and Chelsea, where prices have risen by just 1% in the last year. ‘Those areas that have seen the biggest house price increases over the past year are either in outer London or within close commuting distance of the capital. Demand in these areas has risen as rapid house price rises in central London in the past few years have caused increasing numbers of people to look for property in more affordable areas,’ said Martin Ellis, housing economist at the Halifax. ‘A few towns have experienced modest price falls. These areas are typically still suffering from relatively weak employment and economic conditions, which has dampened local housing demand,’ he added. Continue reading
2016 set to see continued record investment in UK commercial property markets
The next 12 months is set to be another year of strong returns for investors in the UK’s commercial property sector with investment volumes expected to be as strong as 2015 which was a record year. The latest forecast from global real estate advisor CBRE suggests that total investment in UK commercial property will be around £70 billion in 2016 and the firm predicts attractive total returns of around 10.1%, declining thereafter but remaining positive through to 2020. The report explains that as capital value growth slows, income will become the most important driver of returns. A strong economy and an increasing role in e-commerce suggests that the industrial property market will outperform with total returns of 9.5% pa on average for each of the next five years. Retail property is expected to experience happier times as consumer disposable incomes recover, with returns of 7.0%, while recovering supply in the office market will constrain total returns to 7.4% on average each year to 2020. It also points out that foreign investment has long been one of the main drivers of the central London market and while this rose further in 2012/2013 it levelled out at around 70% of all central London investment in 2014/2015. In contrast, foreign investment has not historically been a significant part of the UK market outside central London, making up only around 20% of acquisitions. However, in recent years foreign investment outside London has increased. Indeed, in 2015 so far some 32% of transactions by value outside London have attracted foreign buyers from 31 different countries, a noticeable increase in the diversity of investors. Looking ahead the firm says that the origins of foreign capital will also change. Asian investment inflows have been higher than the 10 year average, with countries like Singapore and Taiwan becoming more important. Meanwhile, European and US investors have withdrawn a little over the last year, potentially due to a recovery in Europe promising relatively better value than the UK. Increasingly, Middle East investment is coming from private wealth rather than sovereign wealth, given the latter is suffering from the low oil price. ‘After several years of strong investment and capital growth, 2016 will offer steadier and more sustainable returns for the commercial property market. The UK economy remains strong, underpinning the rental value growth which will form a much more important part of investor returns than in the last few years,’ said Miles Gibson, head of UK research at CBRE UK. ‘Overseas investment will remain strong and increasingly diversified as London maintains its status as the global centre for property investment. But we predict increasing interest in, and outperformance by, office and industrial property markets in the wider South East and other big UK cities, and a long-awaited recovery in retail,’ he added. According to Ciaran Bird, UK managing director of CBRE UK, property will continue to be a bellwether for the UK economy… Continue reading
