London Update
Issue 38
Feature Article: Investor Clients Ask Young Group...
Young Index Q1 2009 Summary Results
Economic and Market Roundup
Regeneration News
Latest Young Group News
About Young Group
Feature Article: Investor Clients Ask Young Group...
Young Group
Our portfolio managers are in close contact with their investor clients and have noticed that, perhaps understandably given the current economic situation, we are often asked the same questions by a number of clients.
Q: How do you assess the Recession?
We are in a 'new world' and companies and people need to adjust. Success is often achieved by supporting each other, we have to work together to overcome market cycles. From Economists to Politicians, Bankers to Investors, very few accurately predicted the depth of this downturn. However, as in the past, the recession will come to an end, there will be an upturn. Companies with outdated business models have already gone into administration, now good companies that have been around for years are failing due to sharp falls in business, a lack of funding and breakdown in relationships. Individuals are also suffering, through redundancies, reduced income and lack of borrowing.
To coin a phrase, its tough out there, 2009 is proving challenging, but it will come back.
Q: How is Young Group Faring in These Difficult Times?
The last 18 months or so have seen some seismic changes in the global economy and in turn the property sector, with many commentators welcoming a return to good old fashioned investment analysis; a robust approach that we have always adopted.
We look back on the last 12 months with pride. It has been our most successful period to date. Our clients completed on more than 225 apartments with us, drawing upon our Property Portfolio Management service to arrange financing (Young Finance), furnishing (Young Furnishing) and letting/management (Young London) for the majority of these properties.
But we are never complacent, and are currently launching new services for clients, including a full tax self assessment service, working with institutions who are interested in using our PPM service for their own residential property portfolios, whilst remaining focused on our existing clients. These are challenging times, but we're rising to the challenge and adapting our services to meet clients' changing requirements and to take full advantage of the new market opportunities that the current economic situation creates.
Q: How does Young Group See the Residential Market?
As ever, the residential property market presents a mixed picture; nationally and at a regional and local level. Despite the media's broad brush approach to market coverage, micro-markets continue to behave with marked differences, particularly in the capital where micro-location and specific characteristics of the property/ development in question have never been more important.
London tends to outperform the UK as a whole and 2009 will be no different. Whilst the uninitiated tend to panic at the bottom of a cycle and sell (this applies to all asset classes), we see 2009 as a fantastic buying opportunity. By concentrating on areas that we understand well, the prospect of buying at exceptional value has never been more apparent. Confusion over real values and conservatism by surveyors and lenders will enable us to exploit investment opportunities –this confusion will not last however, the window of opportunity is narrow and the time to buy is now.
Q: What Advice can you Give Regarding Rentals?
Cashflow is key. Remaining focused upon rent collection and minimising void periods is of utmost importance and rigorous vetting of prospective tenants can go some way towards mitigating rent arrears. So too can working with tenants at the earliest possible stage if they find themselves in financial difficulties through an unexpected change in circumstances. Young London, Young Group's estate agency business, is proud to say none of its clients' properties are subject to rent arrears disputes.
With increasing numbers of 'accidental landlords' offering property for rent (as a result of not being in a position to sell), there is a rising amount of rental property on offer. In some areas this has resulted in pressure on rental levels; however, there remains demand for well presented properties situated in convenient locations, priced at the appropriate level and the average void period for a Young London apartment is just 10 days.
As competition in the rental market grows, focusing on quality of service becomes ever more important. Young London is proud to be a finalist in the Estate Agent and Letting Agent Awards 2009, voted for by landlords in recognition of the service that they've received.
Q: What's Young Group's View on Current Capital Values?
The issue of stagnation within the property market remains principally one of mortgage funding rather than property prices. Buyers and sellers can agree a price and there is evidence that the appetite from buyers is on the rise, but mortgage availability has been restricted in past months.
Lenders' high margins, raised credit score hurdles and the limit of funds that are available on new mortgage products mean that those products that are attractive are quickly taken up and are then withdrawn again, often within a matter of days.
Additionally, sales data (or comparables) that surveyors use in order to assess a property's value are very few and far between as low numbers of transactions are taking place. Those that are sold are often 'distressed sales', which do not give a true picture of value.
On a positive note, the London market appears not to be flooded with property from forced sellers: individuals seem to be taking the view that prices will come back and are opting to hold and rent out their property, rather than sell. Lenders who have previously 'fire sold' repossessed property are also tending to hold rather than sell in stronger locations. This is particularly true of the London market where lenders with newly acquired residential assets are able to secure tenants; their intention is to hold until the cyclical property market presents a more favourable market for sellers.
We are also seeing strong interest from overseas purchasers who are able to take advantage of significant exchange rate gains when buying UK property and the capital remains an area favoured by international investors.
Q: What is the Outlook for Investing in Property in 2009?
Quality will be the differentiator for the year ahead. Those with existing portfolios will seek to protect their position by attracting quality tenants - but in an increasingly competitive rental market will need to provide impeccable quality of service in order to retain them and keep void periods to a minimum.
Quality is also the watch word for clients looking to capitalise on current market opportunities. Young Group is developing a new 'immediate acquisition service' to provide investors with opportunities that have the potential to deliver solid returns over the medium term. Applying robust due diligence to the selection criteria, Young Group's new service enables investors who are in a position to complete an investment transaction immediately to take advantage of distress in the near term market.
Q: What is the Outlook for the Mortgage Market?
The last three months has been characterised by a lack of mortgage choice, high margins charged by lenders and imposition of low Loan to Value (LTV) criteria. However, the Bank of England's decision to begin the process of Quantitative Easing (QE) should loosen the constraints on the mortgage market.
Q: What is Young Group's Focus for 2009?
MIPIM, the annual property conference and exhibition held in Cannes proved an ideal platform for Young Group's senior management team to discuss our Property Portfolio Management service with institutional investors. Asset management is an entire industry in its own right in the world of commercial property as institutional investors seek to maximise and protect the value of their commercial assets. However, institutional investors have tended to shy away from residential investments due to the time intensive nature of residential property management. This is changing and developers, lenders and institutions are now holding these assets. Young Group is working with these investors to manage their London portfolios; something that is set to increase greatly during the coming months.
With a focus on providing an even greater breadth of services, Young Group is developing a full self assessment service to compile and file tax returns on behalf of our private investors, as well as being able to offer advice on Inheritance Tax, Capital Gains Tax, Estate Planning and Wills.
Here's to the upturn.
Portfolio Management Team - Young Group
YOUNG INDEX Q1 2009 SUMMARY RESULTS
- 99% of investors intend to hold their residential property investments for the next 12 months. 35% intend to keep their assets for at least 10 years and 28% of buy-to-let investors intend to retain their investment property for the next 15 years or more. The average hold period for residential property investors is 10 years.
- 40% are considering buying additional residential property investments in London during the next 12 months, compared to 23% who are looking at opportunities in the UK outside of the capital.
- The outlook for London property prices is more than twice as strong as for the rest of the UK. 49% of investors believe that London prices will be at current levels or higher by this time next year, (up from 36% in Q4 2008) whereas only 24% expect the same to be true of UK property outside London.
- 60% of respondents expect the Bank of England base rate to have risen above the current level of 0.5% by this time next year, standing at an average of just over 1.0%.
Deflation Itself Not as Bad as Its Causes
The Bank of England has warned that the factors that cause deflation – defined as a sustained drop in prices – may carry higher economic costs than deflation itself, but states that 'the wise application of monetary policy can mitigate the effects' in research posted in its latest quarterly bulletin. “If policy responds sufficiently promptly and decisively, employing the full range of conventional and unconventional monetary policy instruments, deflationary episodes should be short-lived,” the article concludes. This comes just after the BOE cut interest rates to near zero and unveiled a plan to pump money into the economy through quantitative easing. The report concludes that the UK has lived through several periods of falling prices in the past whose effects have been relatively benign, but points out that the period of falling prices in the late 1920s and 1930s has resulted in commentators “demonising” deflation without understanding it properly.
Berkeley Homes Calls Bottom of the Market
Head of Berkeley Group, Tony Pidgley, has called the bottom of the current downturn in the cyclical property market. Pidgley, who made his reputation by calling the 1990s housing crash correctly, told The Independent on Sunday: “We all accept that, give or take 5%, the market is somewhere along the bottom [of its economic cycle].” He added that there would be roughly 40,000 construction starts on new homes in 2009 meaning government ambitions to complete up to 240,000 new homes a year would not be fulfilled any time soon.
Enthusiastic Buyers Look to London
Buyer enthusiasm continued to grow in February with interest in London at a high not seen for more than two years, according to figures from the Royal Institution of Chartered Surveyors (RICS). Interest in the market increased for the fourth consecutive month. 20 percent more Chartered Surveyors reported a rise than a fall in new buyer enquiries, up from 15 percent in January.
Interest is strong in nearly every region with London and the South of England leading the way. In fact interest in London reached levels not seen since October 2006. 44 percent more Chartered Surveyors reported a rise than a fall in new buyer enquiries in London up from 25 percent in January. The rise in interest reflects both the drop in asking prices and continued interest rate cuts. As house prices fall, those with finance are looking to pick up bargains, but whether interest will translate into transactions is dependent upon purchasers' ability to secure mortgages.
House Prices Up in January
It's official; house prices actually rose during January - but the annual rate at which they are falling continued to accelerate during the month, latest government figures show. The average cost of a home in the UK rose by 0.2% during the month of January to stand at £195,724, according to the Department of Communities and Local Government (DCLG). But properties lost a record 11.5% of their value during the year to the end of January - the 15th month in a row that the annual rate of house price inflation has deteriorated. The surprise increase in house prices was driven by a 4.9% jump in the average price of a detached property during January. The DCLG also reported an easing in the quarterly rate at which house prices are falling, with properties losing 3.9% of their value during the three months to the end of January, compared with 5.2% in the previous three months.
Borrowers Warned of Future Return to Higher Interest Rates
Kate Barker, member of the Bank of England's Monetary Policy Committee, has warned that once the current downturn has been dealt with, interest rates could rise rapidly to counter inflation. Discussing stability and monetary policy, Ms Barker said she was aware that – having cut interest rates to 0.5% and introduced quantitative easing to combat flagging growth and the risk of deflation – sharp rises could be on the cards further down the line “to avoid an overshooting of inflation.”
High Street Lenders Commit to Providing Mortgage Funds
Within the past few weeks a number of British banks have promised to make mortgages and other loans more widely available. The nationalised Northern Rock Bank, for example, has decided to overturn a previous decision and offer approximately £14 billion in mortgages during 2009 and the same amount the following year. Shortly after this announcement, the Royal Bank of Scotland also confirmed that it would open its doors to mortgage seekers, making available a total of £1.7 billion.
ARLA Welcomes Improvement in BTL Repossession Figures
Ian Potter, Operations Manager of the Association of Residential Letting Agents (ARLA), welcomed the Ministry of Justice and Council of Mortgage Lenders' (CML) latest figures on buy-to-let repossessions; “What is encouraging is that these figures show that both repossession claims and orders for landlords have decreased by between 2-3% on the same period in 2007. This would suggest that the sector is becoming used to belt-tightening under the extreme conditions that this downturn has plunged us all into. It could also be an indication that much of the property bought speculatively has worked its way out of the system, leaving the private rented sector in a stronger position going forward.”
Property Yields Outperform Savings
The rental yield of letting out a flat or house is on average between 4-5% across the UK, far higher than the current interest rate of 0.5%. ARLA points out: “With interest rates so low our members are seeing investors tempted back to the buy-to-let market as rental yields offer a greater return than the banks. With financial markets in crisis, it's clear that bricks and mortar are a safer bet than stocks and shares. Buy-to-let remains a solid investment, particularly if you're looking to commit for the long term and not out just speculatively investing or looking for quick capital uplift. Potential investor landlords should be heartened by these figures but I would advise that they conduct extensive research on prospective properties in order to achieve the highest return.”
Study Shows Value of Crossrail Regeneration
A new report into the impact of Crossrail, the east-west train link spanning the capital from Heathrow in the West to Essex in the East puts the economic benefit to London at a staggering £1.2 billion and the borough of Newham is set to benefit to the tune of £100 million. The report conducted on behalf of Crossrail by consultants Colin Buchanan expects Greenwich to be the next best-off borough, benefiting by £84 million. London Mayor Boris Johnson said the document was an “incredible snapshot” of Crossrail's potential impact.
Battersea Power Station Plans Lose Iconic Glass Chimney
Plans by Rafael Viñoly for the redevelopment of a 38-acre site surrounding Battersea Power Station are being revised following Mayor Boris Johnson's oposition to the project's proposed 300m glass chimney. Real Estate Opportunities Limited unveiled plans for the site last June, including a 300m glass chimney and 'eco-dome' which would provide natural ventilation for the structure and add 'green' credentials to the project. In December the developer was forced to reduce the height of the chimney by 50m amidst strong objections from community groups and reports are circulating that the chimney will now be removed from the plans completely following a warning by Boris Johnson that the plans would interfere with views of Westminster.
Shard Starts
Construction of western Europe's tallest building began earlier this month. Designed by Renzo Piano, and funded by a group of Qatari banks, the Shard of Glass will tower 1,016ft above London Bridge station and stand nearly three times as high as St Paul's Cathedral. When completed in 2012, it will overtake One Canada Square as the UK's tallest building.
43 Storey Resi Tower Planned for Newington Causeway
Oakmayne Properties has submitted a planning application for a tower of 369 flats on the site of Eileen House near the Elephant & Castle. The scheme would replace the 1960s former Department of Health office block known as Eileen House. The development's lower floors would be office space and Southwark Primary Care Trust has already begun a consultation on its plan to create four 'care centres' across the borough, including one at Elephant & Castle to serve north-west Southwark, which could occupy space at the new tower. A smaller seven-storey office building would sit alongside the tower, facing Southwark Bridge Road. The tower would form the northern-most point of a triangle of skyscrapers with the famous 'Strata' tower at the top of Walworth Road and the proposed '360' tower on the former London Park Hotel site.
Greening Southwark and London's Great Spaces
Southwark is to gain 122 of the first 1,500 street trees funded by City Hall. Two of the 20 London neighbourhoods chosen for the first batch of trees – Camberwell and Borough – are in Southwark. The Mayor of London, Boris Johnson, has also announced plans for a major scheme to revamp and revitalise some of the capital's unique public spaces, making London an even more attractive place to live, work and visit.
The Mayor's 'Great Spaces' initiative will champion existing public spaces that currently have poor access or are unwelcoming and unattractive. The aim is to help transform some of the city's better as well as lesser known streets, squares, parks and riverside walks into places Londoners and visitors will want to use and enjoy all year round. The Mayor commented; “I am determined to do all I can to lead London through this recession and ensure it emerges stronger than ever. Key to that is improving our quality of life and environment, and it is the capital's public spaces that make London such a wonderful, engaging city and help attract millions of visitors every year. But we need to take a closer look at some of the hidden treasures as well as the well known spaces that abound – spaces that are currently difficult to use and unwelcoming - and turn them into something great.”
Young Finance's New Online Home
A brand new website has just been launched by Young Finance providing a fresh, easy to navigate route through the mortgage minefield. With a brand new look and feel, market news and a resource and information centre - complete with downloadable advice guides - the site is invaluable for those looking to capitalise on unprecedentedly low interest rates by switching mortgage as well as investors raising funds for new property purchases.
The new site also provides information and advice on a wide range of personal insurance products (life insurance, critical illness cover, mortgage payment protection and income protection) as well as specialist buildings and contents cover for landlords and tenants. Take a look at www.youngfinance.co.uk and let us know what you think of our new website
Young London: Estate Agency of the Year Awards, 2009
We're delighted that our estate agency, Young London, is a finalist for this year's Estate Agent & Letting Agent Awards, thanks to our landlords who've voted us 'Best Letting Agent in London' just six months after opening our first high street agency office. The overall winners will be announced on 8 April at a ceremony hosted by Phil Spencer from Channel 4's Location Location Location.
Young London Team Strengthened
Cornelius Curtin has joined Young Group as manager of Young London. With more than 10 years experience of the residential property market, Cornelius' market knowledge, hands on approach and enthusiasm is already paying dividends. The team is now managing more than 300 properties on behalf of Young Group's clients, none of which are subject to rent arrears disputes.
The Landmark - Vouchers
Many thanks to all those elligable investors who confirmed their postal address details in order to receive vouchers. These will be distributed within the next 2-3 weeks.
Young Index, Q1 2009: We Have a Winner!
The response to this quarter's Young Index of market sentiment has been the best yet and we'd like to thank everyone who took the time to share their views on the market. By way of thanks, anyone who provided contact details was entered into a prize draw and Jonathan Heaton is this quarter's winner of £100 of John Lewis vouchers.
Young Group at MIPIM, Cannes
The world's largest property conference and exhibition took place this month in the South of France. Young Group's senior management team was there, sharing market knowledge and opinion; focusing on opportunities to share the benefits of our PPM service with institutional investors, lenders and developers.
London Update Feedback and Comments
We'd very much like to hear your views and feedback regarding our monthly London Update newsletter. If you have any comments or suggestions for future themes, please feel free to email moakes@younggroup.co.uk. If would like to respond to any of the items, your comments could be featured in a future issue.
Young Group specialises in providing Property Portfolio Management services to private and institutional investors; offering complete asset management services and the best direct investment opportunities in London. Young Group manages the entire process from sourcing investments through to financing, furnishing, letting and management. Young Group is the principal in most transactions and also retains an extensive portfolio of its own. As the principal, Young Group does not realise any profits until completion and has transacted in excess of 1,700 apartments, with a retail value of £700 million. The Group's estate agency, Young London, has successfully let the majority of investors' apartments shortly after completion. Young Group supports NORWOOD and CHILDREN with LEUKAEMIA, two charities that are particularly close to our heart, donating £50 per property exchange.
t: +44 (0)845 356 1000 e: info@younggroup.co.uk
