October 2009 Archives

Some more optimism for the market. BNP Paribas Real Estate's report launched this week reported an increase in the residential market that was double what it was expecting - and it was one of the more optimistic forecasts.

Figures from the Land Registry were much more cautious.

However, I went round to see some of the the resi team yesterday, they had a few more warnings for the market - and probably fair enough.

Click here to listen to John Bowles and Dr Anthony Lee explain the report's findings

...Sorry for the obvious pun. Tottenham Hotspur has just submitted their long-awaited plans for the redevelopment of White Hart Lane and the surrounding area, including 434 homes, a 150-bed hotel and a 56,250 capacity stadium.

The Premier League club will be hoping at it has more success than its north london rival Arsenal, which was stuck launching its shiny new flats into a crashing market.

Interesting post here from the A Little Drop of Cognac blog, on the top worldwide destinations for investing in property:

"Surprisingly Paris only comes 59th (outlook very poor) with New York 62nd and dear old London down in 66th. Chisinau (me neither) heads the list and is marked "spectacular". Amongst the top 10 you'll also find Jakarta and Bogota. Now, I've never been to Chisinau (it's in Moldova) or indeed any of the other "hot spots" listed but I'd have thought that it's a brave man who decides that buying property there is a better long term investment than in, say, Fulham."

The issues of where (and in what) to invest is a hotly contentious topic at the moment, with the likes of Grainger looking to shift their traditional model to student housing and alternative investments (as revealed by EGi), and agents such as Cluttons considering extending their network to new markets such as China.

Industry figures have mixed opinions over the Financial Services Authority's review into mortgage lending released on Monday. As they finish wading through the 118-page report (and don't be fooled that the length of the report means everything is clarified, this is only a consultation paper after all), they are starting to respond with a range of views.

Key to the paper is the intention to regulate buy-to-let mortgages. This is widely being attacked as a catalyst for the property market crash, and action must be seen to be taken against the sector, which has already taken a real hammering of Mafia proportions.

Several industry bodies have accused the FSA of "playing to the gallery" and being too willing to forget their own mistakes as the regulator in this banking crash. But overlooking the playground name-calling, there is great diversity of opinions over the issue of buy to let

The National Landlords Association is hedging its bets, saying that the "devil will be in all the detail", and accusing the FSA of talking "rhetoric about reckless lending"

However, the British Property Federation doesn't see eye to eye with the NLA yet again, and Liz Peace says the complete opposite: that it is "great" that the FSA has finally "woken up" to the need for buy-to-let regulation.

As ever, the terms "landlord" and "buy to let" covers all manner of sins, from the amateur buy to let investor with one other property, to the likes of Grainger, Dorrington, Unite and other institutions. Increased regulation is probably more necessary for the smaller players than the big listed companies, and the last thing the industry needs in these troubled times is to implement moves which make expansion and bringing in new homes even more difficult.

Once again, the debate leads full circle to the need for a properly implemented, regulated and organised private rented sector. Keen investors tell me they have had little dialogue with the HCA after submitting their bids for the PRSI , and several institutions are now understood to be thinking twice about jumping into the rented sector. The landlord community should not hold their breath.

More and more people are reporting property disputes, according to the Ombudsman Christopher Hamer, who said this morning that the number of people calling up with complaints about estate agents had soared 79% in the past quarter.

This is indicative of both more awareness about the redress scheme's existence (after all it has only been compulsory since October last year) and of the market picking up.

Complaints about sales have shown some increase on last quarter but are still down by a third on last year - presumably because there are less sales going on.

Although it seems a little odd to celebrate more complaints in the market (and note that lettings agents are still not regulated in the same way), there can be no more important marker of the sector than its ability to regulate itself and deal with rogue elements.

Read the whole story here

News this morning that Lloyds banking group is to sell Halifax estate agency for £1 to LSL Property Services. The agency, which is so unprofitable that Lloyds said its loss will make no difference to their balance sheets, brings LSL a rather heavy £22.5m of debt with it.

On the brighter side, it also brings another 218 branches and 1,060 staff (with probably around 400 of these are set to go).

Is it a good move for LSL? It's certainly a chance for them to pick up a massive further exposure to the market at a bargain price (if you can turn a blind eye to the debt) and presuming the market might pick up in 2010, LSL will be very well placed as the second largest estate agency network in the UK, after Countrywide. The danger lies if the recovery takes longer than anticipated, and presumes the next 18 months aren't shaken by any sort of unpredictable  political/ financial/ economic calamity.

Cambridge is a city on the move. Literally. It is moving outwards in all directions. Cambridgeshire council has just given outline permission for another 1,200 homes out at Trumpington Meadows - a Grosvenor scheme - and this is only one of four new residential communities puling the city's boundaries outwards.

The Grosvenor development, in south Cambs, will include a new school, community facilties, a 60ha country park, not to mention new roads and associated infrastructure.

Set to follow in its footsteps are  Countryside's developments at Clay Farm and Glebe Farm, to the south and the east, comprising a total more than 2,500 new homes. Other sites earmarked for expansion include the Niab agricultural land and Orchard Park to the north.

What is particularly significant about the Trumpington go-ahead is that the developer has agreed to 40% affordable housing. Cambridge has a big problem with affordable housing - researchers and academic staff don't necessarily get paid in the upper echelons of wage brackets, and it has a pressing need for more housing - 8,000 people are on the council's housing list, with almost 40,000 commuting into the city every day for work.

Grosvenor and its partners the Universities Superannuation Scheme (USS) and Bedfordshire Pilgrims Housing Association (bpha) only agreed to the 40% with help from its friends. The Homes and Communities Agency is giving it a grant of £4.5m, to be repaid when the homes are sold. Otherwise it could be facing into the legal black hole Countryside is currently entrenched in - the developer for the Clay and Glebe Farm schemes is arguing that it can only afford 16.5% affordable housing in the downturn, and has clashed swords with the local authorities.

Without help from the public sector, this could have become another case of much needed housing falling into a beaurocratic no-man's land.

A double dip recovery (or "W" as it is largely being referred to by the industry), is unlikely according to Assetz this morning. The investment company has said that predictions of a second drop in house prices are largely based on the possibility of forced sales, when (and when indeed) interest rates start to rise. The RICS said last month that the increases in house prices were being underpinned by a lack of supply, suggesting that as more are properties brought to the market, demand will be met and prices will collapse again.

Although the sector is poised for this wave of distressed asset sales, Assetz is dismissive of this theory, and says that the base rate will remain low for the forseeable future, and the fundamentals of supply and demand remain the same, and so any flooding of the residential market looks unlikely.

Chief Exec, Stuart Law predicts a much more steady, modest recovery, neither a drought nor floods of distressed properties on the market, saying: "There is an expectation that recent house price strength will bring a flood of sellers to the market, almost overnight, but any increase is likely to be balanced out by the large number of buyers now looking to make their move.

"Overall I expect it to be a steady and well balanced process, with the net supply of re-sale property increasing only in-line with gradual improvements in house building."

Any dramatic increases in unemployment will of course temper this prediction, but it is a welcome addition to hear some calm optimism amid the debate of a "corregated iron" recovery.

Interesting note this morning from Seema Shah at Capital Economics on the issue of self-certification mortgages.

Shah follows up on the theme that the FSA is planning to introduce a rule spelling the end of self-certification mortgages, or "liar loans" (She refers specifically to The Times' story on this from this week). These are mortgages where borrowers don't need to apply for proof of income.  From the lending community's point of view, this measure seems a positive - these mortgages have been largely associated with unscrupulous borrowers who could pretend they earned more than they really do. Time for a crackdown.

Not so, according to Shah.

She quotes the FSA's own data that in the first half of this year, 14% of all mortgages approved were self certified, totalling 45,000 home loans. Shah says that the impact of ending these self-cert mortgages could be "significant",  forming "yet another obstacle to a sustained housing market recovery."

She continues: "For a start, existing borrowers with self-certification mortgages who have experienced a drop in income, or who initially exaggerated their incomes, will struggle to refinance. At the margins, this may result in a rise in forced sales. However, the bigger impact will be on potential buyers.

"After all, even leaving aside those borrowers who deliberately lied in order to get a large enough loan, self-certification allows people with irregular earnings to obtain a loan based on their own assessment of their potential earnings. And that could potentially be based on a single year, or even a few months. By contrast, most conventional loans still require proof of income over longer time horizons, which in many cases would result in smaller mortgage offers.

"Unless the availability of mortgage credit improves sufficiently to allow borrowers to bridge the gap between house prices and earnings, the baton would have to pass to either high inflation, strong earnings growth or falls in nominal house prices. Given the weak economic outlook, we think deflation is a bigger risk than inflation, while average earnings growth is likely to fall into negative territory next year. That only leaves further house price falls. The upshot is that the closure of the self certification mortgage market would spell yet more bad news for house prices."

In the second announcement in as many weeks from Dragon's Den entrepreneur James Caan, his private equity firm Hamilton Bradshaw and ING have joined up to launch a new commercial property fund today.

 Although not looking to invest in residential at the moment, the new venture comes on the back of Caan's £1bn Look for a Property fund, which is aiming to offer interest free loans to homebuyers to help with moving costs. The Dragon, who was optimistic about this today when I spoke to him at the new fund's launch at ING's offices (listen to the interview with James Caan here), has found the scheme met with a mixed response.

Estate agents have ranged from lukewarm to outright critics - there has been little actual entusiasm for the scheme, which involves estate agents linking buyers with the lenders. Agents have to pay an amount of commission to sign up for the lending programme, which is probably not attractive at the moment, and the word "gimmick" has been mentioned more than once. On the other hand, there has been an underlying feeling that anything which helps the market can only be a good thing.

Only time will tell - dare I say "Watch this space" ?