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News: Negative property market: Fact or Fiction?

Fri, 04 Jan 08

Speculation is rife about a crisis in the property market, and although much of this is based on unfounded claims and conjecture, the continued negativity is running the risk of turning into a self-fulfilling prophecy...

The danger is that people are now beginning to believe such spurious claims, offering a further knock to consumer and investor confidence.

Despite recent market negativity, Chief Executive of Assetz, Stuart Law, highlights some of the key factors working against claims of a housing crisis in 2008:

 “While there is no denying that the rate of house price growth will continue to slow in 2008, this is the result of a widely anticipated period of stabilisation, and is not the beginning of a housing market crash, as is being touted within the industry.”

Stuart Law is urging professional property investors to study the facts, not the fiction, about the outlook for the UK property market in 2008 by answering some important questions:

Short term:  Are house prices going up or down?

Average house price growth across all of the major house price indices was recorded as 8.1% over the last 12 months. More recent data shows rather volatile monthly figures, however as usual not a lot can be read into this, other than to suggest growth is currently between 0% and 5% following buyer caution under a barrage of negative press headlines.

We expect good opportunities to arise over the next few months, as vendors needing to move and developers looking to achieve sales quickly with buyer incentives, continues to provide excellent prices. This will start to show in the house price indices, and better prices mean better rental yields for investors with more potential for growth over the years to come.

Long-term: Which direction will property prices have gone in 10 to 15 years time?

Professional investors will generally take a medium to long-term view of the market, and reasonable predictions forecast good growth over this longer timeframe, making any short-term price wobbles irrelevant.

Are interest rates going up or down? 

Everybody close to the market fully expects bank base rate reductions of around 0.75% over the next year. As a result, professional investors using base rate tracker mortgages can expect substantial mortgage cost reductions over the coming months and payable rates of around 5% are likely on many products, before fees.

Are rents likely to go up?

According to recent RICS, ARLA and Paragon surveys, rents are already up. London rents are already at 15% and, as usual, this is likely to be preceding significant growth in the rest of the UK regions.

What fundamentals are driving rental growth?

First-time buyers have dropped from over 20% of the market to less than 10%. At the same time, homebuyers are buying in less volume but still at a greater rate than property coming on the market.

This represents a substantial number of people switching from buying to renting and a disproportionate number of smaller households resulting from frustrated first-time buyers unable to get onto the ladder. This will lead to substantial growth in rents for flats and terraced property.

Is there an undersupply or an oversupply of property?

Government’s increasing targets for new housing indicate there is a massive undersupply of property in the UK. The talk of oversupply has referred mainly to rented flats in city centres. However, it is now becoming clear that this was a relatively small oversupply and agents in many cities and towns are reporting strong rental demand surges and a rapid reduction in rental accommodation available. Even city centre flats are recovering and rental demand is so far boding well for strong rental growth in the future.

Is inflation under control?

Competition between the supermarkets will keep inflation under control, oil prices are now dropping and average inflation for the last three months has been bang on target, at just below 2%. Clearly interest rates are now starting to lower following a sharp fall in inflation over the last few months.

Is population growth, fed significantly by immigration, likely to continue and hence support house prices and house price growth?

Government figures suggest the population will grow 4.4 million by 2014 - that represents an enormous extra demand for housing when there is already a shortage.

Should I be buying with all the bad news in the press? 

Rents are rising and opportunities exists to use the current fearful market to your advantage, buying at better prices than has been possible for some years, from forced sellers (some developers and people who need to move house very quickly). Buying cheaply in a strong rental market will significantly enhance yields for buy-to-let investors and allow mortgage costs to be covered relatively easily and relatively quickly.

Professional investors in any market act against the crowd. This is the opportunity to think like a professional investor and buy at a time of market pessimism, with a 10 to 15 year plan. What is more, rents will pretty much cover your mortgage straightaway with strong returns already being reported.

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