London Update

March 2007

Young Group Survey Results
Number of Gross UK Housing Completions
Economic Outlook
Market Comment
Other News

Young Group Survey Results

The popular image of property investors pouring their money into bricks and mortar in an attempt to get rich quick is a myth: Young Group’s latest survey found that the majority of respondents choose property because they believe it is the best way to prepare for retirement. When broken down by age, younger investors were more likely to choose property because they believe it outperforms other asset classes, whereas those aged 36 and over said that pension planning was their primary reason for investing in residential property.

Those already invested remain committed to the sector, despite the perceived high level of house prices. Given a £10,000 windfall, respondents said they would be most likely to put the extra cash into residential property. Perhaps surprisingly, it is not the youngest age group, but those aged between 36 and 50 who would be most tempted to blow the money in a spending spree. Those respondents both above 50 and below 36 years of age would be more likely to choose bricks and mortar followed by stocks and shares.

“Location remains overwhelmingly the most important attribute of an investment property”

The survey found that the typical investor comes from a financial services or IT background. They are male, living in London and earn on average between £50,000 and £100,000. The survey results suggest that property investors are financially well rewarded with the average income of those investing at the moment being higher than those not investing: 24% of investors earn more than £100,000 a year, compared with just 16% of non-investors.

“Fewer than 10% of respondents rated income generation as an essential attribute”

Given the fact that the majority of respondents live in and around London, it was unsurprising to find a strong London bias in portfolios. Over 40% said they own, or would like to own property in London. Next in popularity was owning property in the rest of the UK and less than a quarter own property abroad. The survey also found a strong bias towards two-bedroom properties.

It may be a cliché, but location, location, location remains overwhelmingly the most important attribute of an investment property, with more than a quarter of respondents rating the right location as essential. No surprise to find that price was second most important. More interesting, perhaps, is that the potential to offer capital growth was third most important. Fewer than 10% of respondents rated income generation as an essential attribute. The age of the property, as well as its completion date, were rated least important by most investors.

The internet has emerged as the key source of information for investors. More than 35% of respondents rated information from the internet as ‘excellent’; the next most reliable source of information was property magazines, followed by professional bodies and property programmes. There was bad news for some professionals: lawyers and financial advisers all rated relatively poorly as information sources. Families were seen as least useful of all, with more than a quarter of respondents saying that their relatives were a poor source of information.

For advice on buying and selling properties, and for finding tenants, investors still turn to the traditional source – estate agents. However, when it comes to property management, investors under 35 and over 50 are more likely to do the work themselves. Those aged between 36 and 50 – probably the group most constrained by work and family commitments – use agents to manage their investments. Women are also more likely to turn to agents to manage their properties. Furnishing of properties tends to be taken on by the investor, with the average spend on a one-bedroom flat peaking at around £3,000.

In conclusion, there remains a strong appetite for investing in property with the majority of respondents finding the UK economy to be stable. A reflection of this is their estimate that the base rate will sit at 5.5% at the end of 2007. Most pleasing for Young Group was that 94% of investors rated their services as either good, very good or excellent and that over a quarter of their PPM clients are sourced by Young Group through referrals.

Written by Paula Hawkins – Paula freelances for The Times, Sunday Telegraph and Evening Standard.

Number of Gross UK Housing Completions

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Economic Outlook

In a poll of 60 economists, 11 felt a rise in interest rates would follow April’s Monetary Policy Committee meeting, while 35 believed May would be the most likely month for the hike. However, there was good news from Mervyn King, Governor of the Bank of England. He told a committee of MPs that with gas and electricity prices coming down, the Bank expected the consumer price index to start falling back from its current rate of 2.8% - hopefully relieving inflationary pressures and reducing the need for further interest rate rises. In the Budget, Gordon Brown, Chancellor of the Exchequer, forecast inflation to return to the long term target of 2%.

Market Comment

	Although the recent rises in interest rates seem to have done very little to dampen the mortgage market, net lending for February was the 2nd highest on record at £10.3 billion, topped only by December 2006 at £10.5 billion. While the number of net approvals, often considered a good indicator of future property price movements, was slightly higher than market expectations at 119,000.
	Although the rate of house price inflation may have slowed, there is still no sign of the much vaunted downturn, “The housing market showed further signs of cooling'' said Fionnuala Earley, chief economist at Nationwide, “[but] not only are insufficient numbers of homeowners putting their properties on the market, levels of house building continue to undershoot the levels of demand'' she said. “The UK housing market will remain fairly firm in the short term.” and on the Nationwide’s prediction of house price gains for 2007 of between 5 and 8%, “… still looks on track”.
	Hamptons International, quoted on The London Stock Exchange’s website, claim that London residential rents are soaring. This is due to a severe shortage of suitable stock and an influx of frustrated buyers who, unable to get their foot on the housing ladder, are having to rent. Rosanna Caldwell, senior manager at Hamptons International's Kensington branch, said: "We are witnessing offers considerably over the asking price, with tenants increasing original offers in an attempt to seal the deal. With a massive shortage of one bedroom flats available for rent, those that do come to the market are being let within hours, securing phenomenal prices".
	Recently released figures from the NHBC shows a slight increase in housing completions in 2006 from the previous year (see above graph). However, this remains over 25% below the recommended level of 250,000 new households per year stated in the Barker Report.

Other News

After selling a portfolio of Covent Garden properties to a joint venture between Anglo Irish Bank and Clarendon Properties for about 115 million euros (£78 million) in 2005, The Royal Opera House must today be feeling a little sheepish as barely 2 years later the portfolio has been sold on for a 70 million euro (£47 million) profit. Unconfirmed reports claim a spokesman for the opera house said, “we couldn’t give a fig[aro]”.

If you are one of the lucky few to own a luxury home in the capital worth over £5 million, you could see its price rise by as much as 20% this year. According to Savills estate agents “In many people’s eyes, London has taken over from New York as the address of choice [and] there is no end in sight for the supply-demand mismatch that drives the market”.

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