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Guest Post from Michael Day- Managing Director of Integra Property Services shares his views on the property market

07 February 2012

Michael Day's straight talking views on the property market

Michael Day has had over 36 years experience in the Property Market. He is now the managering director integra property services.

Rising unemployment, the on-going Euro debt crisis and general economic malaise is undoubtedly taking a toll on all markets and housing across the UK generally is suffering. The inability of first time buyers to get on the housing ladder continues and, as their incomes get taken up by high rents in the private rental sector and banks continue to keep their lending drawbridges firmly raised, there is no early end in sight to difficult property market conditions.

Yet, despite the above, the property market in 2012 has (certainly in London and the South East) started more positively than many were predicting.

The reason appears to be the simple old economic adage of supply and demand. Quite simply, in good markets such as London and the South East, demand continues to outstrip or, at best, match supply. This is having a positive effect on values which, whilst generally not rising (except in highly sought after markets and in London) are certainly not falling as one might expect given the general economic picture.

Elsewhere across the UK the picture is less strong and there are many local and regional markets where values have fallen and supply exceeds demand. Locations particularly badly affected by unemployment and lack of investment being most vulnerable.

Transactional volumes are at low levels (around 550,000 sale transactions in the UK last year) and agents and others have adjusted their businesses to account for this 50% fall in numbers since 2006/2007.

Anecdotally, I anticipate that, irrespective of external factors, there will be around half a million sale transactions in any given year due primarily to the 3D factors of death, divorce and debt. The market shows higher volumes when the 4thdimension of discretion comes into play and people want to move. That discretionary factor is currently at play in that people are exercising their discretion and staying put!

The number of properties available for sale has steadily fallen over the last 12 months but our population continues to rise and with people living longer, the demand for accommodation is increasing.

New home building, despite the Governments seemingly incessant PR about how they are bringing about positive changes in planning and new home sales, remains at woefully inadequate levels. It has long been estimated that we need to build around 250,000 new homes every year for the next couple of decades and yet the most up to date figures from the Department of Communities & Local Government indicate that only some 118,000 units were constructed in 2011 and the predictions for 2012 are not any better.

My view is that 2012 will not look too dissimilar to 2011 in overall volumes and I do not expect prices to collapse either. I do however think that there will be further polarisation between local and regional markets and a widening of the “North South divide” with some areas suffering much more than others.

The private rental market has grown as people have found either retaining ownership or getting into home ownership difficult, primarily due to tougher lending criteria being applied by mortgage lenders. The huge increase in demand and only slightly increased supply in this sector has seen rental values increase significantly. These conditions look set to continue for the foreseeable future although there is growing evidence of tenants finding it increasingly difficult to meet their financial obligations which in turn is damaging to landlords, particularly those who have borrowed heavily to purchase and who have high gearing. With little, no or even negative capital growth to bail them out, I expect to see a number of landlords forced to exit the market as the year progresses.

If you are still with me and haven’t slipped off to slash your wrists just yet, there are some real positives to take from the current situation but private individuals, agents and associated businesses need to think carefully about their strategies for surviving and thriving.

A by-product of the economic situation and of the Government’s “austerity measures” is a low interest rate environment. The UK’s triple A credit rating enabling UK plc to borrow at rates that most of Europe and the rest of the world can only dream about.

Whilst borrowing additional capital is not easy at the moment, managing debt has become easier and repossession number whilst rising slightly, remain well below levels that one would expect to see in a period of such economic difficulty. Whether a problem is being “stored up” here for when the market upturns, remains to be seen, as there has undoubtedly been a reluctance (and Government pressure) for lenders not to issue possession proceedings but they may feel more inclined to do so if the market makes selling easier.

Overall, the market remains OK for consumers with a sensible and pragmatic approach. For property professionals such as estate agents and conveyancers, any growth in volume will have to come by taking market share from competitors. I anticipate many fierce “battles” for consumers’ business in the months ahead. Conveyancers have the added pressure of lenders looking to streamline their panels and I forecast a more rapid polarisation between those firms committed to providing professional conveyancing services and investing in them and businesses that simply do not have the economies of scale and throughput of conveyancing business to ultimately survive.

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