London Update
Issue 39
Feature Article: What Has Happened to Renting in the Capital
Economic and Market Roundup
Regeneration News
Latest Young Group News
About Young Group
Introducing Young Group's Guest Authors
This issue welcomes our inaugural guest author, the National Landlords Association (NLA), as part of an initiative to further broaden the topics addressed in London Update. We thank Vincenzo Rampulla of the NLA, the leading representative body for private-residential landlords in the UK, for sharing his views on the impact that the recession has had on London's private rented sector.
Our next guest columnist will be industry luminary Liz Peace. Chief Executive of the British Property Federation (BPF) and one of the most respected voices in property, Liz will examine the case for increased institutional investment in the residential property sector.
Feature Article: What Has Happened to Renting in the Capital?
by Vincenzo Rampulla, National Landlords Association
How has the recession affected London?
The private-rented sector (PRS) in London makes up just over one fifth of all homes in the capital. How much effect the rapid downturn in the mortgage market and the credit crunch has had on the PRS has yet to work its way through to official figures. In 2007 Government statistics showed that the PRS grew less quickly than the country as a whole. But new figures could show that trend reversed.
Percentage increase of private-rented tenancies in London and in England since 1991 Source: Survey of English Housing data, CLG
The PRS generally works counter-cyclically to the housing market. When people cannot afford to buy their own home they look to renting as an alternative. However, there have been particular aspects of the recent economic turbulence which mean that landlords, and especially landlords in London, need to look very carefully at the rental market.
There has been a lot of discussion recently pointing to the influx of new rental properties in the London market, in some areas driving rents down. In March the Royal Institution of Chartered Surveyors (RICS) reported both a 42% increase in tenant demand and a 46% increase in new property instructions. This has generally been put down to individuals unable to sell their properties due to a lack of mortgage finance and the fall in house prices. Dubbed 'reluctant landlords' by the media, these landlords rent out their homes at reduced rents, while they 'ride out' the downturn in prices. This rise in inexperienced landlords could pose a real threat to the market.
Professional landlords know that renting property successfully means being in it for the long term, and keeping on top of legislation. Life as a landlord can be difficult and time-consuming, something reluctant landlords are unaware of. New, inexperienced entrants can quickly find themselves in difficulties if they haven't done their homework. If new landlords are unsure of their legal responsibilities (for instance tenancy deposit protection, energy performance certificates or gas safety regulations), they run the risk of being on the wrong side of the law and ignorant of where to go for help and advice.
The underlying problem is that while these new landlords may provide more properties for tenants to choose from, they cannot provide the service and quality of a professional landlord.
Housing benefit disaster
If competition from reluctant landlords means a more challenging environment for landlords, it also means professional landlords also need to look at how they operate in different areas of the rental market. One such area which some landlords may decide to consider is the housing benefit market.
As the economic situation in London continues to develop, with more redundancies and lower wages, some commentators are advising landlords to look at this particular part of the rental market as a growing source of tenants. However, landlords should be wary.
The lack of affordable housing and long housing waiting lists mean there is high demand for properties, but it may come at a cost. Landlords in London could find themselves exposed to rental arrears, as a result of Local Housing Allowance (LHA).
In April 2008, following pilot projects in a number of different areas, the Government rolled out wide-scale changes to the housing benefit rules. Introduced as Local Housing Allowance (LHA), the primary change for landlords was the move by the Government to automatic payment of housing benefits directly to the tenant.
Recent research, conducted by the National Landlords Association (NLA) showed in London, landlords were equally likely to rent to benefit tenants as not. However, over a third of London landlords were put off renting to benefit tenants because of the fear that some tenants on LHA would not pass on the money to landlords and generate large amounts of rental arrears (see below).
The NLA has heard from members nationally who are moving away from the housing benefit market because of the rent arrears that tenants are able to generate. Nationally 52 per cent of landlords said that they would not consider renting to benefit tenants.
The most worrying aspect of the results was that as many as 45 per cent of London landlords said that they do not understand how the housing benefit system works.
Groups encouraging new landlords to look to the housing benefit market as a source of new tenants should make it clear that it is critical that landlords know exactly what they are getting themselves into. They need to understand how the system works, what their options are if anything goes wrong and they need to be prepared for the worst.
With local authorities responsible for housing benefit administration, it is important that local authorities in London do more to inform and provide help to landlords operating in this part of the market. Over a fifth of landlords in London were worried that local authorities would be the source of rent arrears.
How do we improve renting in the capital?
It is clear that local authorities need to think more clearly and creatively about how they utilise landlords in the capital to help provide housing. But London could, on a regional level, look at how it can grow and develop the PRS to not only provide more housing but also to develop renting in the capital.
Late last year Boris Johnson, the Mayor of London, published his draft Housing Strategy for London. Starting with a clean slate, he has indentified initiatives for every part of the housing sector - designed to improve access to affordable housing, raise aspirations and promote opportunity in housing.
But the section of the strategy which talks about the PRS is depressingly short. The main proposals in the strategy revolve around increasing institutional investment in the PRS (which has not had any significant impact on the UK housing market to date), raising the number of accredited landlords in London and the development of a rent map for the capital.
It is unclear just how these proposals will help grow the sector, or particularly help tenants. We desperately need more vision from the Mayor in setting a strategy for growing the PRS. The London Housing Strategy should look at how to encourage more people to become responsible, professional landlords and look at how to ensure that tenants coming to London to rent have all the information they need to make that experience better.
The Mayor should look to facilitate local authorities in working more closely on areas like housing benefit, and providing advice to ensure that both landlords and tenants have access to support and information.
Vincenzo Rampulla
National Landlords Association
“Worst of the Recession is Over” According to the CBI
Estimates by the Confederation of British Industry (CBI) suggest that Q1 2009 was the worst period of the recession so far, with a 1.8% decline in GDP, compared to a 1.6% fall in output in Q4 last year and a 0.7% drop in Q3 2008. But according to Director-General Richard Lambert, the worst of the downturn is now behind us; aggressive base rate cuts, a weaker pound, low inflation and the global fiscal stimulus should now slow the rate of decline in Britain's GDP this year, although a recovery is not expected to begin until Spring 2010. The National Institute for Economic and Social Research also expects the rate of recession to ease.
RBS Index Points to a Slowing Rate of Decline
The Royal Bank of Scotland's Purchasing Managers' Index shows that the rate of decline in the private sector is slowing. The Index splits the UK into 12 regions, 10 of which showed that the rate of economic decline in the 3 months to March slowed when compared to the previous quarter. London recorded the slowest rate of contraction but despite a slowing pace, March represented the 11th successive month of contraction in the private sector.
Surprise House Price Bounce Greeted Cautiously
Nationwide's March house price index showed a rise in house prices of 0.9% during the month, the first UK aggregate house price rise since the autumn of 2007. Fionnuala Earley, Nationwide's Chief Economist urged caution, “While the rise in prices in March is welcome, it is far too soon to see this as evidence that the trough of the market has been reached.” Data from Hometrack was more cautious. The price monitor reported that house prices were still falling, although less than was previously the case, stating that in March prices fell by 0.6%, the lowest decline in 10 months.
Interest Rates Stabilise
The Bank of England (BOE) base rate remains at its 315 year low of 0.5% in April, while pressing ahead with its programmes of quantitative easing and asset purchasing. With an initial £75bn available to spend the BOE has already made purchases totalling £25bn, principally upon Government gilts of 5-25 years, and expects to have completed the first £75bn programme by mid-June.
The Centre for Economics and Business Research points to deflation still being a major concern for the BOE and expects interest rates to remain at current levels throughout 2009 and midway into 2010.
Landlords Buy More Property
The latest survey from the Association of Residential Letting Agents (ARLA) shows that more than double the number of landlords were buying properties in Q1 2009 than in the previous quarter. Ian Potter, operations manager at ARLA believes; “The data shows that there are bargains to be had in the property market at the moment for those with a keen eye, substantiating our belief that buy-to-let remains a viable long term investment vehicle.”
The findings support Young Group's own Young Index research which at the end of March showed 40% of buy-to-let investors intend to purchase additional investment property within London during the next 12 months.
House Purchase Enquiries Up for Fifth Month Running
The Royal Institution of Chartered Surveyors (RICS) first reported a rise in enquiries five months ago. This trend has continued and the ratio of sales to stock has also improved over the last 3 months, with the average stock held per agent falling to 66.7 properties, compared to 81.1 in October of last year. Sentiment with regard to prices, whilst remaining firmly negative, is also on the up; the percentage difference between surveyors reporting falling prices against those reporting rises was -73.1% for March. This is the most positive result seen since February 2008.
New buyer enquiries are growing at the fastest rate since September 2003, but sales themselves remain extremely low; in the 3 months to March, there were less than 10 sales per surveyor, down 57% on a year ago. Ian Perry of the RICS commented, “Buyer interest is starting to gain real momentum, but will remain frustrated while mortgage finance is scarce,” and that accessibility for first time buyers is likely to remain difficult while loan to value ratios generally remain at current levels. Similarly, Neil Young, Young Group's CEO noted, “investors keen to take advantage of current market opportunities are being hampered by lenders' reluctance to provide mortgage finance.”
Mortgage Approvals Rising But Still A Fraction of their Peak
New figures from the Council of Mortgage Lenders (CML) show that 24,300 mortgages were secured in February this year, an increase of 4% over the previous month whilst the number of first time buyer loans surged by 7% month on month. However, putting the figures in wider context, the value of home loans for the month stood at £3.1bn, the same level as in January this year, and 55% lower than 12 months ago. They remain well short of the long term average of 70,000 to 80,000 mortgages per month. Similarly, the number of first time buyer loans was down by 46% on the same time last year and remortgages were down by 58% over the same period. CML Director General, Michael Coogan, said: “Some banks are making more funding available, which is helpful but will not satisfy consumer borrowing demand on its own.” He called upon the Government to introduce additional market measures to enable banks, building societies and specialist lenders to commit more funds if lending activity is to be significantly enhanced.
Has the Property Market Rounded a Corner?
Yes, if you ask Lombard Street Research. The economic think tank has declared that house prices are now affordable and forecasts that the worst of the property slump is over. Its affordability index, produced in conjunction with the Daily Telegraph shows that for the first time in five years, house prices are more affordable than their long term average and represent good value for those that can access the appropriate finance.
The RICS Issues New New-Build Guidelines
The Royal Institution of Chartered Surveyors (RICS) has issued a new guidance note which requires all incentives to be disclosed over newbuild homes and advises surveyors on how to accurately value newbuild property in a housing downturn. Changes come into effect on 1 May 2009. The RICS is also to launch a consultation into transparency of professional fees in the property sector, to include valuation fees, service charges for leasehold properties, the declaration of insurance commissions, commission on letting renewals and commission gained from Home Information Pack production.
Listed Property Leads the Way to Asset Allocation
A report by the European Public Real Estate Association (EPRA) shows that listed property returns generally lead moves in the underlying direct property market by an average of six months. The roughly six-month time lag between the listed property sector and the direct property market stems from the greater pricing transparency and quicker transfer of information in equities compared against physical property markets, which are less liquid. Cohen & Steers' Global Portfolio Manager, Scott Crowe who co-authored the research said: “We believe that understanding the relationship between the two markets has useful implications for investors. By using listed property returns as a leading indicator of direct real estate performance, investors can meaningfully improve their asset allocation decisions.”
Residential Property Outperforms Commercial
Investment Property Databank (IPD) figures, reported by leading industry publication Estates Gazette, show that investment grade UK residential property was more resilient than commercial property during 2008. Residential capital values fell by 18% last year, faring better than the 26.3% decline seen in the commercial real estate sector during the same period. Assured tenancies was the most resilient of the three residential sub-sectors included in the IPD data, reporting a 15.8% decline in capital values. Assured shorthold tenancies and corporate lets recorded declines of 17.8% and 18.1% respectively. Malcolm Hunt, head of UK client services at IPD, said: “From an investment perspective, the residential market more than held its own last year which was the most financially volatile year in living memory. This is a timely reminder of the potential diversification benefits of investing in investment grade residential property.”
Mastercard Transfers
Credit card giant, Mastercard, has announced that it will move its operation from the City to Canary Wharf when its lease expires, moving into 40,000 sq ft of space at 10 Upper Bank Street.
SE1 Towers Get Blears' Go Ahead
Hazel Blears, Secretary of State for Communities and Local Government, has announced her support for the Mirax-Beetham Tower at 1 Blackfriars Road and the two tower development proposed for 20 Blackfriars Road - of 23 and 42 storeys. The two planning recommendations effectively pave the way for the wholesale redevelopment of the north of Blackfriars Road.
Waterloo's Three Sisters Development Called in
Meanwhile, Ms Blears has ordered a public enquiry into P&O's proposals for three buildings in York Road next to Waterloo Station, ranging in height between 20 and 33 storeys. The proposals are consistent with current planning policy to create clusters of tall buildings at transport interchanges and the proposals were approved by the London Borough of Lambeth in August 2008. However both English Heritage and Westminster City Council oppose the York Road plans as the buildings will be visible from Parliament Square. A final decision is now expected in Spring 2010.
Malthouse Calls for Barracks Inquiry
Deputy London Mayor, Kit Malthouse, has called for a public enquiry over plans to redevelop Chelsea Barracks, citing that “the site and design implications are too important to be decided upon at a purely local level.” The cry for a public enquiry follows hot on the heels of the Prince of Wales' call for the site's Qatari owners to drop the controversial Rogers Stirk Harbour Partners' masterplan.
London Lighthouse to Shine Once Again
Planning permission has been granted for a 32,000 sq ft mixed use refurbishment of the grade II listed London Lighthouse in Kings Cross. The building has been empty for a number of years and is on English Heritage's 'at risk' list. The new plans will include basement and ground floor retail units as well as office space and will see the buildings historic facade and rooftop lighthouse retained and sympathetically restored.
Southwark's Fine Library
Plans have been agreed for the striking new library at the heart of British Land and Canada Quay's regeneration of Canada Water in SE16. Totalling 34,000 sq ft over four storeys, the inverted glass pyramid will border a new civic plaza that will form the heart of a new town centre for Canada Water including shops, public areas and 900 new homes. Work will begin this year and is due for completion in 2011.
Treasury's Power Plans
Owner of Battersea Power Station, Treasury Holdings, has unveiled revised plans for the redevelopment on the iconic site after initial proposals for a new 250m high 'eco-chimney' were dropped. The ambitious Rafael Vinoly plans have been scaled back in advance of submission this summer, but the proposals retain a curved glass roof enclosing the power station and its four striking chimneys, along with 2.5m sq ft of office space and significant residential accommodation. The plans also include extending the Northern Line to the site by 2015; the first privately funded extension of the Tube network.
Battersea Gas Unlocked for Development
Meanwhile, a 5-acre former gasholder site bordering Battersea Power Station could be decommissioned to make way for homes, offices, a gym and restaurants following National Grid's move to commission plans to be drawn up for the site. The re-zoning of the site would have significant implications for the Battersea-Vauxhall opportunity area, unlocking 10 acres of development land at Battersea Power Station and further land at Queenstown Road.
Green Shoots that Need Watering
Young Finance has spotted some positive moves by lenders over the last month. RBS and HSBC have both launched mortgage products with higher ratios of loan to value (LTV) than seen of late; 80% and 90% respectively. However, these higher LTV new mortgages are confined to the residential sector and Neil Young, CEO of Young Group, is urging lenders to reassess their criteria for buy-to-let borrowers.
Ability Place Completion Nears
Notice has been served by the developer on our investors' apartments at Ability Place, now know as The Icon, in Millharbour, E14. Investors' Portfolio Managers are already in contact with regard to preparations for legal completion, which will take place within the coming days, and will continue to liaise with them throughout the process.
Young London Tweets to Woo Tenants...
The hugely popular Twitter facility is one of the latest online innovations to be added to Young London's website (www.younglondon.co.uk), enabling tenants to keep up-to-date with the latest property details and market news and information through Twitter's 'tweets' - short news items and property links that can appear directly in their browser. Visit www.twitter.com/younglondon to 'follow' Young London.
The Young London website consistently achieves 200% more traffic than Google's benchmark for Estate Agents, with each visitor viewing 25% more pages than the industry norm. Neil Young, attributes much of Young London's success to a strong and innovative online presence, which is at the forefront of the adoption of latest Web 2.0 functionality; “For our landlords, being able to market property quickly and effectively, targeting the demographic that it appeals to is vital. Potential tenants and purchasers are increasingly using the likes of Twitter to keep tabs on new property that is coming onto the market, virtually instantly.”
...and is Streets Ahead
Twitter is not the only new functionality to be featured on the site. Young London enabled the new Google 'Street View' option on the very day that it launched in the UK, enabling visitors to the website to view pictures of the street and surrounding areas that properties are located on.
Street View provides potential tenants and purchasers with a real flavour of the neighbourhood. People can take a virtual walk down their new High Street, see the shops and facilities that are nearby and even 'walk' the route from a property to the local tube or train station, all from the comfort of their desk.
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 many 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 more than 1,700 apartments, with a retail value in excess of £700 million. The Group's estate agency, Young London, has around 350 property assets under management, across London. 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
