London Update

October 2006

The Future of Transport in London
10th Anniversary of Buy to Let
London Residential House Price Trend
Economic Outlook
Market Comment
Other News

The Future of Transport in London

Accessibility is a key factor in an area’s capital values, the more accessible a location becomes the more attractive it will be to prospective businesses and residents, in turn pushing up property prices. Buying property before these improvements take place can often result in a great return but where are the next hot spots? Listed below are some of the major transport infrastructure projects planned for the capital over the next 10 to 15 years, according to a report by CB Richard Ellis - “Transport Change and the London Property Market.”

Channel Tunnel Rail Link – Due in 2007 facilitating international travel from Central London. The new line will pass through the Thames Gateway and Stratford making these areas more attractive to corporate clients and the scheme is the catalyst for the £2 billion redevelopment of Kings Cross and adjacent sites along Euston Road.

Crossrail – Will for the first time allow train travel from East to West through Central London. Current projected costs are in the region of £10 billion and the scheme is likely to be completed around 2014. If given the go ahead, areas likely to benefit include Paddington, Canary Wharf, Stratford, City Fringe and Heathrow.

East London Line Extension – An integral part of the 2012 Olympic plan. Phase 1 is due by 2010 and will extend from Crystal Palace in the South to Dalston Junction in the North. The project will act as a catalyst for the regeneration of under developed areas such as Croydon, Haggerston and Dalston.

Docklands Light Railway – This fourth extension of the DLR will run to London City Airport and North Woolwich. The government has approved a further extension reaching Woolwich Arsenal (c.2008). The areas set to profit are the City Airport area, Royal Docks, Woolwich and Woolwich Arsenal.

Read the full report.

10th Anniversary of Buy to Let

In September 1996, the Association for Residential Lettings Agents (ARLA) and a select group of 8 forward thinking lenders created the Buy to Let (BTL) mortgage. Their aim was to turn the residential letting market from one dominated by relatively few volume based commercial investors, into an easily accessible investment vehicle for the private investor, revitalising the rental market in the process.

In the 10 years since, the UK has seen steady, sustained growth in the economy with low inflation underpinning a very positive environment for investing in property. The average professional investor (classified as owning at least 3 properties) now owns 12 properties.

In a recent survey by Paragon Mortgages 91% of investors reported that tenant demand is stable or rising and that investors plan to grow their portfolios significantly over the next 12 months and beyond, principally on the back of the rising demand side and improving yields. Respondents to the survey with a positive outlook massively outnumbered those with a negative viewpoint of just 7%.

Michael Ball, Professor of Urban and Property Economics at the University of Reading Business School in his report, ‘Buy to Let, The Revolution – 10 Years On’ comments: “Today over a million households live in privately rented investment properties worth over £120 billion and the sector contributes over £30 billion to the economy every year”. He goes on to say, “[private investment]…has spread the reach of the private rented sector into areas that had little or no private renting before. This has had the knock-on effect of reviving housing markets and assisting in inner city regeneration.” Mr Ball forecasts an extra 2 – 3 million rented homes by 2016.

London Residential House Price Trend

Click to view a larger image

Economic Outlook

	As we predicted in last month’s newsletter, the Monetary Policy Committee (MPC) maintained interest rates at 4.75% for the second month in a row, although the minutes revealed a 7 – 2 split among the members, with its 2 newest members pushing for an immediate rise. The other 7 members agreed with their arguments but felt an unexpected rise so shortly after the last, could fuel expectations of further rises. It is now highly likely November will see a 25 basis point rise.
	With inflation running above target it appears the MPC is concerned businesses are increasingly trying to raise prices and that wages could move significantly higher in the 2007 pay rounds. Even Mervyn King, the Bank of England’s governor, warned inflation was a serious concern.
	As can be seen in the graph above, the last interest rate rise had little effect on the London housing market. With the largest monthly rise in asking prices for the year to date coming immediately after another widely publicised and anticipated record breaking year for city bonuses, a further rate rise should not have an undue effect on the London property market.

Market Comment

	Further confirmation of London’s booming property market came from Liam Bailey, Knight Frank’s head of residential research who described September as an “extraordinary month” for London’s housing market. &# 8220;Buyers came back into the market in serious numbers after the summer break. Our records reveal that the number of buyers registered to purchase property in central London is 111% higher than the same period last year.”
	This view was corroborated by Paul Smith, chief executive of Haart Estate Agents, who said, “Interest rate rise may have caused a very slight dampening of appetite amongst buyers looking to enter the market but this did not affect prices as it was outweighed by a significant shortage of stock and generally high levels of demand which caused prices to increase."
	Citing another reason for the pick up in house prices, The Royal Institution for Chartered Surveyors’ (RICS) chief economist Milan Khatri said, "We think there has been a particularly sharp acceleration [in house prices] over the last couple of months and that will take some time to feed through into the [house price] data. Manufacturing and retail sales have picked up; that's feeding through to a strengthening labour market and economy - the key factor driving the housing market."

Other News

	Swiss Re have put the Foster and Partners designed “Gherkin” up for sale. The gherkin is probably the UK’s best known modern building and Swiss Re have registered interest in the £600million structure from a number of parties including British Land, Prudential and the Abu Dhabi royal family.
	Another bumper year for city bonuses is imminent, paid between December and March and predicted to top £9billion. Although no-one can track how this money is spent with accuracy, a Centre for Economics and Business Research study conducted a few years ago found that 50% of bankers’ bonuses was spent on London property.

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