Colin Campbell, Private Banker at Nedbank Private Wealth’s London office, hosted a residential property event for private clients and intermediaries last month, to address the question of the moment:
10 years on from the financial crisis, with Brexit looming and tax and regulatory changes coming into force, is UK residential property still ‘safe as houses’, and should investors be looking to buy, sell or hold?
Guest speaker Lucian Cook, Director of Residential Research for Savills, provided insights into the mainstream UK residential market and the key factors driving it. Political uncertainty, Brexit, policy changes and recent interest rate increases are all having an effect. There has been a shift in activity from buy-to-let towards first-time buyers, and home movers are at half thelevel of ten years ago. Regional changes over the past four years have led to a widening gap between north and south, although this has started to recede as London and the South East slow. There has been growth in private rented sector demand across all age groups, creating one of the driving forces behind ‘build to rent’, which is taking up much of the slack in the market.
Savills’ market outlook remains muted in the short term, with the potential for growth of up to 14% over the coming five years. Regional variations will see the North West of England exhibiting the strongest growth and London the weakest, although Central London is likely to perform differently to the capital as a whole. It was felt that Mark Carney’s recent comments - predicting a 35% correction in UK property prices in the event of the ‘no-deal’ Brexit - had been taken out of context and were predicated on a scenario of spiralling interest rates, something the Monetary Policy Committee’s forecasts state is unlikely in the medium term. Price corrections of 1989-93 and 2007-09 showed reductions of 20%, each following much higher rates of growth in the preceding ten years. There is a lot of sobriety in the market at present but opportunities still remain: these will be politically driven, with much greater government rhetoric and action to build new homes and new ownership incentives. This will be backed up by a more muscular house building industry with builders, housing associations and large institutions playing their part.
Simon White, Managing Director of London’s Surveyors and Valuers, and Gary Heynes, Head of Private Client for RSM, joined Colin and Lucian for a panel discussion. Changes in the London market were debated, with some of the best potential opportunities being on parts of the Crossrail route. Owners and landlords will need to prepare for various tax changes, and many of them will receive much larger tax bills going forward. Restructuring is one possible option, but this is not a panacea, nor are higher yielding types of tenancy, and professional advice should be sought where appropriate.
The impact of a change of government was explored, with the consensus being a more socialist government would have a limited impact on property regulation. Stamp Duty Land Tax and Council Tax are unlikely to be reformed, and rental controls are unlikely to be seen again, regardless of who is in power. Overseas investor sentiment has cooled but only in proportion to the market, with investors waiting to see a resurgence in the strength of sterling. This has impacted the new build sector, but it was felt that the negative headlines regarding new build have been overplayed. Simon suggested that recent valuations in the ‘Nine Elms’ development were coming out at 2012/13 levels.
In summary, while a sober mood remains for the residentialmarket overall, there are signs of cautious optimism over the medium to longerterm. While tax and regulatory changes are undoubtedly impacting themarket and reducing demand, supply remains limited too, and the UK continues tobe an attractive destination, both to live, work and invest in. As to whether owners, or prospective owners, should buy, sell or hold, there wasno easy answer - each situation must be considered on its own merits.
Excerpts from all of the speakers and panellists, along with Lucian Cook’s presentation, can be found on our video channel, www.vimeo.com/nedbankprivatewealthintl
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