London Update

October 2007

The Perils of Predictions – By Paula Hawkins
Crossrail Brings 10% Boost to London’s Transport Capacity
London Residential House Price Trend
Economic Outlook
Market Comment
Other News
Young Group's October Highlights
About Young Group

The Perils of Predictions – Paula Hawkins

THE DOOMONGERS are out in force. Every week seems to bring a fresh forecast of the impending house price apocalypse. October 18 saw The Times splash ‘UK housing market heading for crash’ on its front page. The previous week, the Daily Telegraph reported that the ‘buy-to-let bubble’ was ‘fit to burst’, while the Observer also said in late September that buy-to-let landlords were selling up, fearing a crash.

We have seen all this before. The media have been speculating about the likelihood of a housing market slump for years. In November 2002, for example, the Daily Telegraph led with: ‘House price boom must end, says Bank of England’. The following month the same paper asked ‘Who will survive a property crash?’. In June 2003, the Daily Mail sounded a ‘House price warning over the Euro’, while in March 2005, the BBC aired a programme entitled ‘The Great House Price Crash of 2005’.

To be fair to the journalists, this is not simply a case of the media whipping up a storm: many of these stories are based on the predictions of respected economists and market experts. The recent Times story, for example, was prompted by a report from the International Monetary Fund (IMF), which stated that homes in the UK were overpriced by as much as 40%. Back in 2004, economists at PricewaterhouseCoopers were warning that UK house prices could fall by between 10% and 15% by 2009. Roger Bootle of Capital Economics was even more pessimistic, predicting that same year that house prices would fall, from peak to trough, by 20%. Interestingly, when Mr Bootle was questioned if he would therefore be selling his home, he said no! Last October, an Organisation for Economic Cooperation Development (OECD) report stated that UK house prices were overvalued by 30%, while in April this year, the Dutch investment bank ABN Amro said that prices were 50% overvalued.

It is difficult to imagine that anyone considering buying a home or investing in a buy-to-let property could remain immune to such dire predictions, yet it is hard to quantify just how much influence these forecasts have. What makes matters all the more confusing is the wealth of data available, much of it conflicting, as a look at the latest house price statistics opposite shows.

Some indices show strong price growth while others are showing a fall because the bases of the indices are very different. The Land Registry figures, for example, record all property sales in England and Wales. Because they show actual sales prices, they accurately reflect the property market, but lag behind other data.

The Department for Communities and Local Government’s figures appear around two months in arrears, and they exclude all cash purchases, which account for roughly a quarter of the property market transactions.

Halifax and Nationwide’s figures cover the UK, not just England and Wales, but their figures are based on prices agreed for properties on which they have arranged mortgages, they are therefore biased towards those areas in which they tend to do most lending. For Halifax, that is the north of the country and for Nationwide, the south. Rightmove’s figures are based on asking prices for houses advertised for sale on its website, while Hometrack collects data from 3,500 estate agent offices in England and Wales.

So how are buyers and investors reacting to the new mood of trepidation in the UK property market? On the face of it, it would appear that first time buyers have taken the warnings to heart: according to Moneysupermarket’s ‘Mortgage Map’, first time buyers are disappearing from the UK market ‘at an alarming rate’, with the percentage of first time buyers dropping by 20% in just six months. However, whether this is due to a lack of confidence in the market or simply a result of declining affordability and a more difficult borrowing environment is impossible to say.

There is plenty of anecdotal evidence that headlines regarding potential house price decreases do affect buyer sentiment. Back in June 2004, when newspapers reported that Mervyn King, the Governor of the Bank of England, said that ‘Anyone entering the housing market should consider carefully the possible future paths of both house prices and interest rates’, many estate agents reported a dramatic decrease in the number of enquiries.

Speculation that a housing market crash was imminent was as fevered then as it is now, and it sparked a new trend: sell-to-rent, in which people sold their properties, thinking that they had seen the top of the market, and chose to rent, planning to return to the market once the carnage was over and there were bargains to be had. The crash, of course, didn’t come. The rate of house price growth slowed significantly, from 20% to just 2%, but after a cut in interest rates in August 2005, it took off again. The experience of the sell-to-renters reveals the folly of trying to predict the property market: since August 2005, average house prices in England and Wales have risen by 15%, and in Greater London by a whopping 26% according to Land Registry figures.

The crash, of course,didn’t come; house prices have only fallen in 4 out of the past 50 years

In fact, it would appear that despite speculation that property prices are headed south, public confidence in the market remains high. Recent research from the Association of Investment Companies (AIC) shows that 62% of people believe that the housing market will continue to rise, although 44% of active investors (those investing in stocks and shares as well as property) share the same opinion.

Most estate agents, banks and building societies are forecasting modest price increases for 2007: Savills is most optimistic, forecasting growth of 15%, while the RICS forecasts growth of 7% and Martin Ellis, chief economist at Halifax, says prices will rise by no more than 4%. But given the accuracy of industry forecasts, and the plethora of factors that affect the market and market sentiment, does anyone know for certain how it will behave in the short term?

“An opinion is knowledge that has been given a particular direction. Unmediated knowledge is just data; dull and meaningless. Opinions are informed patterns of thought; they are what makes knowledge valuable,”
Stephen Bayley

Early forecasts for 2008 are bearish, with Nationwide and Savills both predicting average UK house prices to rise by 3% to 5%. Once more, London is forecast to lead price increases with prime central London property expected to outperform the country as a whole and rise by between 6% and 10%; yet more evidence that the fundamentals of supply and demand that drive the Capital’s property market remain unchanged. After all, as Mark Twain famously said, “Buy land; they’re not making it anymore.”

Written by Paula Hawkins – Paula writes on the residential property market for a range of national newspapers including The Times, The Independent, The Sunday Telegraph and the Evening Standard. A former deputy personal finance editor at The Times, Paula has also written a guide to personal finance, published by Penguin Books.

Crossrail Brings 10% Boost to London’s Transport Capacity

Crossrail, the biggest transport infrastructure project in the UK since the Channel Tunnel rail link, received the go-ahead this month after The City of London Corporation, BAA and Canary Wharf Group pledged voluntary contributions of almost £1 billion.

The financing package comes after the transport secretary, Ruth Kelly, warned only last month that the project would not go ahead without further contribution from London's biggest companies. The three parties were ordered to close a funding gap of just under £1 billion because, according to Ms Kelly, they would benefit the most from the scheme that will see rail tunnels bored under central London, linking Heathrow airport to the financial community in the Docklands via the City.

Described at the largest rail project in the northern hemisphere and an "unbelievable" engineering challenge, Crossrail will stretch from Maidenhead on the western fringes of London through the centre of the capital to Canary Wharf in the Docklands and Shenfield in Essex. The 74-mile route will run overland from Maidenhead to Paddington before burrowing underground, with central London stops at Bond Street, Tottenham Court Road, Farringdon, Liverpool Street and Whitechapel. The line will then split with spurs emerging at Stratford and Woolwich via Canary Wharf. Each Crossrail train will carry around 1,500 passengers and at peak times its capacity will be twice that of the Jubilee underground line.

The Crossrail project will help retain London's position as the world's pre-eminent financial centre and as well as generating an additional 30,000 jobs and when completed is expected to deliver economic benefits of about £30 billion within 60 years.

The government has already spent around £400 million on the project. However, most of the building work has not yet begun - a ventilation shaft in the heart of the City is the only piece of work completed so far. The first trains are expected to begin running in 2017 by which time the desperate need for the ambitious new transport link will be apparent. London’s underground system is approaching capacity, carrying 3 million people on its busiest days, with total passenger numbers topping 1 billion last year.

Crossrail will provide a much needed massive increase of 10% in London's transport capacity.

London Residential House Price Trend

Source: Nationwide

Economic Outlook

	London has increased its dominance in the forex market. The latest triennial survey from the Bank for International Settlements has revealed the UK’s share of foreign exchange trading volumes jumped from 31.3% in April 2004 to 34.1% in April 2007, boosted by becoming the preferred trading centre for Asian central banks. Analysts said London’s time zone made it a much more convenient place for them to trade than the US.
	LaSalle Investment Management’s ninth European Regional Economic Growth Index shows that London remains the best city in Europe for investment. The report points to the strength of London’s financial economy, but also that London is a central hub for hi-tech companies, a leading force in creative industries and an increasingly important centre for medicine and biosciences. In addition the capital’s infrastructure is being boosted for the 2012 Olympics. The report ranks the top 91 European cities, evaluating economic growth, the overall level of wealth, and the relative attractiveness of the local business market.
	The Pre-Budget Report outlined the government’s plan to overhaul Capital Gains Tax, replacing the existing regime with a flat rate of 18%, whilst abolishing taper relief. The news has received a mixed reaction, with many expecting the details, to be announced in next year’s budget to be less straightforward.
	The Pre-Budget Report also trumpeted a doubling of the Inheritance Tax Threshold from £300,000 to £600,000 for married couples or those in civil partnerships. However, as Neil Young pointed out, “Previously, proactive tax planning could achieve the same ends, but this move does simplify the process and bring less disincentive to investing and building wealth.”
	The Bank of England’s Monetary Policy Committee decided to hold the base interest rate steady at 5.75% this month, but there are concerns about the underlying increase in the cost of food. Many commentators are now expecting rates to be held at the current level for the rest of the year.
	The consumer prices index figure was below the City's expectations of 1.9% and the Bank of England's target of 2%, but food prices within that were up more than 6%.

Market Comment

	The Land Registry’s latest House Price Index noted that London continues to lead the rest of the country in terms of house price growth with an increase of 1.5% for the month, taking the average London house price in August to £349,838, an annual increase of 16.7%.
	Earlier this month, Berkeley Group, parent company to some of the UK’s leading development brands, notched up a 20p rise in share price overnight thanks to Killik & Co who said the company had a strong balance sheet and a focus on London and the South East, which protected it somewhat from the vagaries of the housing market.
	A survey by the Council of Mortgage Lenders highlights the increasing issue of affordability for today’s first time buyers. Almost half (46%) of those aged under 30 were likely to be getting substantial help with their deposits from relatives. The proportion has risen steadily from around 10% in 1995.

Other News

Visitors to Canary Wharf may have spotted an unusual sight over the last few weeks. In an effort to help out a mate who was pining for a New Zealand beer, Speight’s shipped a traditional Kiwi pub to Canary Wharf. Built out of two 40feet containers, the authentic Speight’s Alehouse is a fully functional pub containing operational beer taps, beer cooling systems, 42” plasma television and the obligatory Sony Playstation.

The pub took six weeks to build before embarking on a 24,779 km, 70-day journey by sea across the South Pacific & North Atlantic, taking in Western Samoa, Panama, New York and the Bahamas. The pub stayed at Canary Wharf for two week’s worth of parties and is set to move to a permanent location once a site has been secured.

Young Group's October Highlights

Join us for Bond Street’s Christmas Extravaganza

On 22nd November, Bond Street will host the third annual Bond Noel Christmas shopping and charity evening in support of the Great Ormond Street Children’s Hospital. The famous shopping street will be closed to traffic and transformed into a magical wintry wonderland including falling snow, reindeer, carol singers, street entertainers, musicians, rickshaw sleighs whisking excited shoppers from store to store and even Santa Claus will be putting in an appearance.

Young Group is inviting clients and their families to join us in celebrating the Christmas extravaganza by calling into our Bond Street offices between 3pm and 8pm to share seasonal refreshments before continuing with the festivities, which will include model and author, Sophie Dahl switching on the famous Bond Street Christmas lights. Please contact us for further details on +44 (0)845 356 1000 or email info@younggroup.co.uk.

Young Lettings

Another busy period approaches for the Young Lettings team with The Water Gardens, Westgate and my BASE 1 developments all reaching completion within the next six months. Our Young Lettings division is currently evaluating a number of corporate let proposals — watch this space for further updates.

Young Finance

Similarly, with completion approaching, and most mortgage offers being valid for 6 months, Young Finance is talking to clients to ensure that mortgage offers are in place in advance of completion.

In recent weeks, there has been a noticeable swing towards fixed rate products, which are now generally offering lower rates than trackers, offering investors added certainty to their investment cashflow.

Going East

In November Young Group’s CEO, Neil Young, and Portfolio Director, David Mackenzie, will be visiting the Far East to meet a number of our existing clients. The trip will include stops in a number of major cities including Tokyo, Singapore, Hong Kong, and Kuala Lumpur. The visit provides clients based in the Far East with the opportunity to meet Young Group’s senior management team face-to-face to discuss both the London market and their investment portfolios in detail.

Landmark Event

Young Group clients gathered for an informal networking evening in October at the offices of The Landmark’s developer, Chalegrove Properties.

Those attending had the unique opportunity to view progress of the construction process from the terrace overlooking the site and whilst networking with other Landmark investors over drinks and canapés had the chance to catch up with the Young Group team and their Portfolio Manager. Congratulations go to Young Group client, Bhart Vyas, who was the winner of the evening’s business card draw.

About Young Group

Young Group specialises in providing Property Portfolio Management services to private investors, identifying the best off-plan opportunities in London on their behalf and managing the entire investment process - from sourcing the property through to financing, furnishing and letting.

Young Group is a wealth manager with a focus on property as an asset class. Young Group owns all the property it sells, and also retains a number of properties in each development for its own portfolio. As the principal in every transaction, Young Group does not realise any profits until completion, giving investors 100% confidence that properties will ‘value up’ and that financing will be secured. Young Group has transacted in excess of 1,500 apartments, with a retail value of £630 million. Over 50% of units have been bought by multiple investors. The Group’s lettings division, Young Lettings, has successfully let all investors’ apartments within a week of completion.

For each property exchange, Young Group donates £50 to CHILDREN with LEUKAEMIA, the UK’s leading charity dedicated exclusively to fighting Britain's biggest childhood cancer through pioneering research, new treatment and support of children with Leukaemia and their families, and to Norwood, the Children and Families First charity which provides support to families facing social difficulties.

t:  +44 (0)845 356 1000   e: info@younggroup.co.uk