Market Prospects – 2012
FORECAST FOR 2ND HALF OF 2012
Increases in capital values in the first quarter of 2012 were offset by a slow down in activity and enquiry levels in the second quarter. Prices stabilised against a backdrop of the UK dipping back into recession and the uncertainty over Greece’s future within the eurozone causing volatility in the financial markets and confidence to be dented.
The outstanding performance of the residential markets across central London including Midtown, City and Docklands since 2009 has occurred in spite of mortgages only being available to the equity rich and little or no bank support for private developers and house builders.
The extra investment that London has benefitted from in regards to its transport infrastructure, leisure and retail offerings and improvements to London’s streets scene in the build up to the Olympic and Paralympic Games has been immense. We anticipate that the boost that London’s economy will receive as an ‘Olympic City’ in the aftermath of the Games from tourism in particular will continue to help London through the global economic problems that we face moving forward.
In the political arena, Boris Johnson was re-elected as London Mayor on 5th May 2012, the coalition government looks set for a further 3 years in office. The outcome of the American election in November 2012 is unlikely to have the same impact or influence on the UK economy as changes within the eurozone.
The increase in office requirements from the West End to Midtown, City and East London including the internet business hub at Silicon (Old Street) Roundabout through Shoreditch to Stratford and Canary Wharf, provides a demographic shift from west to east that brings with it an enhanced requirement for residential accommodation across Midtown, City and Docklands.
The Sales Market
We anticipate that the shortage of stock coming to the market that was a key element in prices rising in the first half of 2012 will be alleviated by an increase offering of new homes across Midtown, City and Docklands in the second half of the year. This will be good news for buyers, and this better balance of supply and demand is likely to provide stability to the sales market not only in the second half of 2012 but also moving into 2013.
The Euro crises could easily result in money markets freezing again as they did in 2008, resulting in a further reduction in bank lending capacity. The cost of borrowing which has remained largely unchanged for 3 years is set to rise as banks increase their margins, but for equity rich buyers, including buy to let investors in our market, we do not believe the availability of funding is likely to be barrier to buying.
As we indicated in our end of year Review in December 2011 we believe that prices may see a downward correction of 1-2% in the second half of 2012 due mainly to over ambitious pricing by owners.
We see no reason to change our view but overall we expect to see prices finishing the year ahead of where they finished at the endof 2011.
Looking further ahead we expect transaction numbers which have been subdued in 2012 to increase in 2013 as developers bring a range of well designed new homes to the market including a number of new luxury tower blocks with exceptional views over the capital.
With the residential development pipeline back to pre 2007 levels we anticipate prices remaining stable, as it will become more difficult for developers to increase prices in the face of greater competition from other developments for the buyers. Pricing stability in the sales market over a longer period of time would enable tenants who have been renting over the past decade to finally get their chance to become homeowners.
The rental market
In the short term tenants can look forward to a greater choice of apartments from September when the London market absorbs the additional units held back for short term Olympic accommodation. This increase in supply may take a number of months to work through the system during which time we would expect to see rents fall in the fourth quarter of 2012.
In the longer term looking ahead to 2013 and 2014, we expect additional supply to filter into the market from investments sales secured in 2010 through to 2012 in the Far East and locally in London to Buy to Let investors. As this additional stock comes to the market particularly to the east of the City and Docklands we can see a case for localised falls in rents by 5-10% in 2013 as tenants take advantage of the increase in choice. Landlords should be prepared to work hard to keep good tenants in their properties at lease renewals and not over negotiate.
With the UK struggling to pull out of recession, a further tightening of bank lending policy and the fallout from Greece’s potential withdrawal from the Euro the second half of 2012, the next 6 months are likely to be turbulent for central London’s property market.
At the same time we believe London’s position as a Global City will be strengthened by the staging of a first class 2012 Olympic and Paralympic Games that will have been delivered on time and on budget and the UK’s status outside of the eurozone will continue to attract overseas investment into London’s property markets.
In short, any loss of momentum is likely to be temporary. London’s international status is set to be further enhanced this year, its effect on the residential property market for Midtown, City and Docklands should not be underestimated.