Why is nine months the magic number for UK housing market recovery?

by International Commercial Investment on June 3, 2020

Source: Buy Association

As estate agents, valuers, surveyors and more return to work, the housing market is reviving. The latest predictions have given a timeframe for the sector’s full recovery…

The cogs of the UK housing market began turning again last week as the government set out its new rules. This meant house moves could get back underway, while people hoping to buy or sell now have more options to do so. People can view properties, lenders can have them valued and surveyors can visit homes again.

The reopening is of course subject to a number of guidelines. People must still practise social distancing and additional hygiene measures. For estate agents, letting agents and similar businesses going back to the office, several rules now apply to ensure everyone’s safety.

This activity had largely not “stopped” during the coronavirus outbreak, though. Many agents were working from home, while property viewings were happening virtually. Many lenders were also carrying out “desktop valuations”, and people could still apply for mortgages online. As more people have adapted to using more technology and digital options, the industry has found ways to continue.

Steady improvement

While the easing of lockdown on the housing market is good news, it will be a gradual process. The Royal Institute for Chartered Surveyors (Rics) argues that the industry would benefit from a stamp duty holiday to give it a further boost.

In its latest residential market survey, Rics revealed its predictions for recovery. Contributors to the survey said that they expected property sales to “rebound to their previous levels in around nine months”, when looking at the mean average. For the median average, the expectation was closer to six months.

The survey also broached the topic of a stamp duty break. While around 80% of respondents said they had seen some buyers or sellers pulling out because of coronavirus, 62% said such a tax break could help the market. This would in effect encourage buyers and sellers while leaving house prices unaffected.

The figure of nine months was taken before the government eased lockdown restrictions for the housing market. Therefore, as former Rics residential chairman Jeremy Leaf points out, the next survey “is likely to be quite different”.

Nine months for the mortgage market

Between 8th April and 3rd May, 467 UK mortgage brokers were asked about their recovery expectations for the sector in the Mortgage Lender Benchmark study. Like in the Rics survey, respondents came up with the ‘magic number nine’ as the number of months until recovery.

Around 77% of brokers are confident lending levels will return to pre-COVID-19 levels within nine months. A more optimistic 51% said this could happen within six months.

While initially the mortgage market retracted many of its products back in March, it relaunched new ones relatively quickly. Many lenders reduced LTVs because of the difficulty of carrying out valuations. However, product numbers have been creeping back up and people have been progressing with their mortgage applications behind the scenes.

Anthony Rose, director at LDNfinance, said: “Mortgage lenders, on the whole, have responded really well to events and maintained their willingness to lend as much as could have been hoped for.

There have been similarities drawn between the current situation and the financial crisis of 2008/2009. However, Rose believes the situation is very different.

“Mortgage lenders themselves seem in a much better position to lead the recovery in the housing market,” he added.

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International Commercial InvestmentWhy is nine months the magic number for UK housing market recovery?

UK Economy Is Picking Up After Brexit

by International Commercial Investment on March 2, 2020

Source: Bloomberg

The UK economy extended a run of better-than-expected growth in February, more evidence of a rebound after fourth-quarter stagnation.

While the expansion continued apace, there were also signs of a hit to supply chains from coronavirus, according to IHS Markit’s flash purchasing managers index.

The virus’s outbreak weighed on manufacturers’ input stocks, which fell at the fastest pace in more than seven years. Some orders from clients in Asia were canceled and extended shutdowns in China proved a headwind.

Nevertheless, manufacturing output grew the fastest in 10 months, offsetting a small downward move in services. Growth expectations in the private sector edged up slightly, the report showed.

The pound held gains after the report and traded at $1.2922 as of 9:31 a.m. in London.

“The recent return to growth signaled by the manufacturing and services PMIs provides a clear indication that the U.K. economy is no longer flat on its back,” said Tim Moore, an economist at IHS Markit. The expansion is running at a 0.2% pace in the first quarter, he said.

Firms noted that a reduction in political uncertainty since the December election, when Boris Johnson’s victory gave a clear path to Brexit, translated into higher business activity and more spending by clients.

This and other reports support the case for the Bank of England to refrain from cutting interest rates soon. Figures this week showed the labor market remains tight and consumer spending is picking up.

IHS Markit’s index for output across the whole economy was unchanged at 53.3 in February, a better reading than the 52.8 forecast by economists and well above the critical 50-mark that separates expansion from contraction.

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International Commercial InvestmentUK Economy Is Picking Up After Brexit

UK economy rebounds as services sector hits 16-month high

by International Commercial Investment on February 6, 2020

Source: The Guardian

Britain’s economy rebounded in January as fading political uncertainty since Boris Johnson’s election victory helped service sector companies record the strongest upturn in activity since mid-2018.

The services sector – which includes banking, insurance, restaurants and hotels – makes up about 80% of the economy. According to the latest snapshot from IHS Markit and the Chartered Institute of Procurement and Supply, business activity grew for the first time since August.

Powered by a rise in domestic activity as exports remained muted, service firms reported that greater clarity over the political outlook had bolstered consumer spending and business investment across the country.

The IHS Markit/Cips purchasing managers index (PMI) for the sector rose to 53.9 last month, the highest since September 2018. The reading was slightly above initial estimates of 52.9, on a scale where a reading below 50 signals contraction.

Staff hiring increased, while the prospect of faster political decision-making led to an upturn in companies’ willingness to spend, according to the PMI survey.

Tim Moore, an economics associate director at IHS Markit, said the PMI readings indicated that GDP would rise by about 0.2% in the first quarter of the year – a marked turnaround from the end of 2019 when growth, in effect, stalled.

“Signs of greater willingness to spend and renewed positivity about the domestic economic outlook has helped lift service providers’ growth projections to the highest for just under five years,” he said.

Despite the rise in optimism, economists cautioned that the survey of about 650 service sector companies was conducted before the coronavirus outbreak hit business activity in China. Analysts have warned that quarantine efforts in the country could drag down growth in the world’s second largest economy, with spillover effects for other countries.

The PMI also showed that orders for UK service sector companies from the EU remained sluggish as continuing Brexit uncertainty dented demand in January.

Although early snapshots indicate a bounce for the economy since the Conservatives’ unexpectedly decisive election victory, analysts warn that the complexity of Brexit negotiations could increase political uncertainty again towards the end of the year.

Johnson has promised that Britain will come out of the Brexit transition period, which maintains free trade with the EU until the end of December, with or without a comprehensive new trade agreement with Brussels.

Chris Sood-Nicholls, the head of professional services at Lloyds Bank, said: “The mood among firms is currently one of cautious optimism as the pipeline of work put on ice in 2019 begins to flow again. However, many are acutely aware of the reality that we are not out of the woods yet.”

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International Commercial InvestmentUK economy rebounds as services sector hits 16-month high

Hongkongers turn to Brexit Britain as a haven

by International Commercial Investment on December 5, 2019

Source: Financial Times

The market for newly built luxury homes in London has been in the doldrums for almost five years, battered by oversupply, tax changes and worries over Brexit. Now, though, it has received a boost from a territory whose political troubles have eclipsed even the UK’s: Hong Kong.

Residents of the semi-autonomous Chinese city have been buying up London homes, while in the commercial property sector purchasers are eyeing big deals, according to analysts and estate agents.

The turmoil in the former UK colony stemming from anti-government protests has revived longstanding links with London and made Brexit appear comparatively unthreatening, propelling a fresh wave of buyers westwards.

“We are seeing masses of [Hongkongers] again,” says Steven Herd, chief executive of MyLondonHome, an estate agent. “What is going on in Hong Kong is driving people to look for a safe haven. It is partly about wealthy families making sure they have property elsewhere that is suitable for them to move into at short notice, and partly about them wishing to get their funds out of a volatile region.”

The number of Hong Kong buyers in London has increased in the past three to four months, many of them seeking homes in the £1m-£2.5m price range, says Herd. The weakness of sterling and falling luxury property prices have added to London’s allure, he says.

“Undoubtedly they have helped to underpin the market and stop it sliding.” Hongkongers tend to prefer new properties. Molior, a company that monitors property developments in London, says 5,156 new homes in the capital were sold in the third quarter of 2019, the highest figure in a year and a half. About a fifth of these went to overseas purchasers, many of whom were from Hong Kong and China. “It is [homes] at the [upmarket] £1,000-£1,200 per square foot level, which haven’t sold well for several years,” says Tim Craine, a director at Molior.

He adds that, despite worries about Brexit, the trend taps into London’s reputation as a haven for wealth from unstable parts of the world. “It is the flight to safety,” he says. “A decade ago it was buyers from around the Mediterranean as the Arab Spring took place, then maybe four to five years ago it was Saudi Arabia. The tide has come in at this particular time because of the trouble in Hong Kong.” By way of illustration, about one in 10 homes sold so far in a new housing scheme by developer Ballymore in Brentford, west London, has gone to a Hong Kong buyer, the company says.

Buyers from Hong Kong are able to defy a broad drop in outbound capital from mainland China, partly because the mainland’s tighter capital controls do not apply in the territory. But more political certainty in the UK would cement the trend, agents say.

There are uncertainties in the US or China and difficulties in the UK, but it is more stable Ronald Sin, Cheung & Sons The “flailing” of sterling “is definitely a contributing factor”, says one British national who grew up in Hong Kong and is considering a purchase in the UK. “I have been considering it for about a year now, but I have put a hold on the process as I think prices will continue to drop [in the UK]. I just have a total lack of confidence in how the government is handling Brexit, so I feel like I have time,” she says. Estate agents note that for Hongkongers, London is not purely an investment destination but also a place to live, full or part-time.

The city has a thriving community from the territory, including the children of wealthy and middle-class Asians at London’s highly rated schools and universities. Caspar Harvard-Walls, a London-based buying agent with Black Brick, has been meeting prospective clients in Asia.

“Some potential [Hong Kong Chinese] clients have raised concerns about their children becoming caught up in the protests and see the appeal of sending them overseas for their secondary or higher education. They are looking for accompanying accommodation,” he says.

Harvard-Walls uses the discount on prime London houses compared with the market peak in 2014 in his pitch — that is, a 34.4 per cent reduction in Hong Kong dollar terms from five years ago, thanks to the depreciation of sterling and the fall in house prices from that peak.

The inflow of capital has been less pronounced in commercial property, where London transaction levels have been dwindling because of Brexit worries — not least because sellers fear exposing properties to an uncertain market.

A run of big purchases by Hong Kong and Chinese buyers two years ago — including landmark skyscrapers in London’s financial district such as the Leadenhall Building (the “Cheesegrater”) and 20 Fenchurch Street (the “Walkie Talkie”) — has been followed by a quieter market. In August, however, CK Asset Holdings — the company founded by Li Ka-shing, Hong Kong’s richest man — bought UK pubs and brewery group Greene King in a £4.6bn deal.

The brewer’s £3.5bn freehold property portfolio was most likely one of the attractions. This followed a failed bid in 2018 for a portfolio of railway-arch properties ultimately sold for £1.5bn. CK Asset is now run by Li’s son Victor Li, but its activities are still followed closely by other Hong Kong investors, says one Chinese lawyer operating in London.

“Where Li Ka-shing moves, others follow,” he says. New entrants from Hong Kong are arriving in the UK commercial property market. In September, a first-time Hong Kong buyer, a client of investment company Goldstone Commercial, bought the Forum St Paul’s office building in the City of London for £80m.

“[Investors] see Brexit as possibly reaching its endgame, and it is all outweighed by the fact that the rioting [in Hong Kong] is pretty horrendous,” says Nick Braybrook, a partner at estate agent Knight Frank in London who advised the buyer. He says people in the UK “don’t register how emotive it is — it’s splitting companies in half, families in half”.

In another City of London deal, Cheung & Sons, a Hong Kong-based property developer, in June bought the freehold of 28-30 Cornhill, a 1930s-built office building near the Bank of England, for £32m. “Buying property in London is quite attractive at this moment,” says Ronald Sin, a senior associate at Cheung & Sons.

“Many wealthy people from Hong Kong or in Asia are looking at the market in London. In China or the US, there are many uncertainties. There are also difficulties in the UK, but it is more stable,” he says. In July, a joint venture fronted by Hong Kong-listed Wing Tai Properties — which owns at least two other central London properties — agreed to purchase 8 Salisbury Square, a 155,000 square foot office building near St Paul’s Cathedral, for £222m, according to estate agent Savills.

Interest in London’s office sector is strong, says Antonio Wu, deputy managing director at estate agent Colliers International in Hong Kong. He says for investors, offices will be the “most interesting sector by far”, adding that “occupancy is still very strong and very healthy”.

Many of the big Hong Kong property groups are also looking at other types of investments in the UK, according to a London-based property lawyer. “There is strong interest, but not this time as a pure real estate play,” he says. At the same time, investors are looking at technology, fashion, leisure and green energy, he adds, but are “nervous” about the possible election of a Labour government led by the leftwing Jeremy Corbyn. “Let’s face it, these investors are some of the most neoliberal people in the world,” he says.

Elsewhere in the world, Hong Kong homebuyers have strong links with Vancouver, New York and Sydney, while commercial buyers have been increasingly active in Singapore and the US, according to data from Cushman & Wakefield, a property services company. Savills’ residential division notes a steep rise in enquiries from Hongkongers — from 1,045 in the whole of 2018 to 1,620 so far this year — in most cases, about UK homes.

But not all have resulted in purchases. Mark Elliott, head of international residential at Savills in Hong Kong, says many enquiries have come from “people who watch the news at night, get a little bit scared and pick up the phone, but you don’t hear from them again”.

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International Commercial InvestmentHongkongers turn to Brexit Britain as a haven

UK growth rebound eases recession fears

by International Commercial Investment on September 10, 2019

Source: BBC News

The UK’s economy grew faster than expected in July, easing fears that it could fall into recession.

The economy grew 0.3% in July, the UK’s official statistics body said, helped by the dominant services sector.

Growth was flat over the three months to July, but this was an improvement on the 0.2% contraction seen in the April-to-June quarter.

This contraction, coupled with some weak business surveys, raised concerns the UK was heading for recessio

An economy is generally deemed to be in recession if it contracts for two quarters in a row.

However, while growth in the services sector – which accounts for about 80% of the UK economy – helped to drive July’s stronger-than-expected growth figure, the Office for National Statistics (ONS) warned that the sector remained weak.

“While the largest part of the economy, the services sector, returned to growth in the month of July, the underlying picture shows services growth weakening through 2019,” the ONS said.

The pound rose in reaction to the figures, rising 0.6% against the dollar to $1.2357.


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International Commercial InvestmentUK growth rebound eases recession fears

UK Housing Market Remains Resilient in August

by International Commercial Investment on September 1, 2019

Source: Property Notify

he UK housing market remained resilient in August, despite prices remaining relatively static since March, according to the latest Halifax House Price Index.

UK homes were worth an average of £233,541 last month, having grown 1.8 per cent year-on-year. On a monthly basis, prices grew by 0.3 per cent, suggesting continued price gains, despite a slower annual rate of growth.

The stable prices coincide with a period of political uncertainty surrounding the UK’s expected departure from the EU. The UK had originally been expected to withdraw from the EU in late March but was eventually granted an extension to Article 50 until October.

MPs have since voted to pass a bill, to request for an extension until as late as January 2020, in the event that the government is unable to secure a new withdrawal deal by the existing October deadline.

Price gains despite weakness

In August, UK home prices remained stable, despite weak sentiment in the market overall. Figures from Her Majesty’s Revenue and Customs (HRMC) suggested home sales were falling at an annual rate of 12.4 per cent, between July 2018 and July 2019.

Despite this, Halifax pointed to an uptick in mortgage approvals, citing data from the Bank of England. They noted that the volume of mortgages approved for financing home purchases rose to 67,306 in July 2019, which was an increase of 1.2 per cent since June, and the highest volume seen since July 2017.

Halifax also reported that the stock of homes-for-sale per surveyor was almost half the level seen at the peak in stock levels in 2008. Before the financial crisis, roughly 85 homes were listed for sale per surveyor, but as of July 2019, closer to 40 were found to be listed as homes-for-sale per surveyor.

Resilience amid uncertainty

The UK housing market was subject to great political and economic uncertainty earlier in the first half of 2019, but a variety of positive fundamentals helped keep it relatively stable.

Russell Galley, managing director at Halifax explained: “While ongoing economic uncertainty continues to weigh on consumer sentiment – with evidence of both buyers and sellers exercising some caution – a number of important underlying factors such as affordability and employment remain strong.”

This strength was reflected, when the Office for National Statistics reported that wages in Great Britain grew at their fastest rate in nominal terms in over a decade, in July 2019, at an annual rate of 3.8 per cent. Faster wage growth indicated more disposable income, increasing the potential for higher consumer spending.

Mr Galley concluded, saying: “Although the housing market will undoubtedly be influenced by events in the wider economy, it continues to show a degree of resilience for the time being. We should not lose sight of the fact that the single biggest driver of both prices and activity over the longer-term remains the dearth of available properties to meet demand from buyers.”

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International Commercial InvestmentUK Housing Market Remains Resilient in August

Investment in U.K. Residential Property Up 150% Despite Brexit

by International Commercial Investment on August 1, 2019

Source: Bloomberg

The uncertainties of Britain’s departure from the European Union hasn’t stopped investors from backing the U.K.’s residential sector.

Total investment volumes in the U.K.’s multifamily sector rose by more than 150% to 6.8 billion euros ($7.6 billion) in 2018, according to a report by broker JLL. London helped lead the charge, with investment volume nearly doubling to 2 billion euros compared to 2017.

That helped the U.K. capital rise to become the fourth-biggest European city for multifamily investment, behind Berlin, Copenhagen and Paris.

Investment in European multifamily properties rose by 40% to 56 billion euros in 2018. The market has proved popular among investors because of the stable cash flow from such buildings and a shortage of supply in Europe’s top-tier cities.

Still, the U.K.’s charge may be shortlived as the uncertainty around Brexit continues to mushroom.

“Given the lack of progress with Brexit, some foreign investors have become more cautious when considering a market entrance,” JLL’s Simon Scott said in the report.

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International Commercial InvestmentInvestment in U.K. Residential Property Up 150% Despite Brexit

Property market optimistic about new Prime Minister in the UK

by International Commercial Investment on August 1, 2019

Source: Property Wire

New Prime Minister Boris Johnson could be positive for the UK’s property market, particularly if he delivers Brexit on time and reforms stamp duty, according to industry commentators.

Although change may not come quickly as it is likely he will focus initially on getting Brexit sorted out, although that on its own will give more certainty to the housing market. The overall feel is that he will inject more enthusiasm into the sector.

‘Brexit has continued to be something of a grey cloud that has loomed over the top end of the market for nigh on three years now and continues to be the driving force behind its instability, particularly in prime central London,’ said Lisa Simon, head of residential at Carter Jonas.

‘Promises from Johnson around the relief of onerous taxes is a potentially positive move for the market but this all hinges on whether or not the new Prime Minister can hold his position and prevail against the opposition in the event of a general election,’ she explained.

She believes that it might be better to adopt more of a Jeremy Hunt mindset and she thinks his proposed policies would have served home owners well. ‘Hunt’s plans to put more steam behind the private rental sector and allowing councils to buy land, to commission more homes at a price people can afford, would have made home ownership more accessible to aspiring first time buyers in the capital and so Johnson should consider bringing Hunt’s vision for housing to life under his own leadership,’ she pointed out.

‘Johnson’s intentions to generate more movement in the top end should clear some of the blockages further down the chain but home ownership and affordability in the mass market is still an issue that is yet to be addressed in the right way. While benefits to the top end should filter down, Johnson should be driving forward policies that tackle challenges in the middle and lower end of the market more head on,’ she added.

According to Camilla Dell, manging director at Black Brick, a move to reverse the stamp duty increases put in place by George Osborne, when the top rate increased from 7% to 12%, would be very good news, particularly for the London market which has been suffering from an onslaught of tax hikes on property since the end of 2014.

‘There is now clear evidence that the stamp duty increases have started to dent the tax take. We would welcome a review of current property taxation, particularly the 3% surcharge and proposed 1% additional charge on foreign buyers, which has had the effect of pouring glue into the market and resulting in a dramatic fall in the number of transactions happening on an annual basis,’ she explained.

‘Furthermore, a move to cut stamp duty on homes below £500,000 would clearly benefit the first-time buyer market. In our opinion, this should only apply to first time buyers and not investors. However, the market needs to treat promises made by Boris Johnson with real caution,’ she added.

Robert Nichols, chief executive officer of Portico estate agents, pointed out that it is no secret that stamp duty hampers household mobility and the higher the tax, the more difficult it is for people to move and keep the market moving.

‘We saw the market go into standstill when George Osborne hiked up stamp duty for homes valued at £925,000 or more in 2014. There was a huge spike in volume as investors and second-home buyers rushed to buy properties before the stamp duty changes came into effect in April,’ he said.

‘But as quickly as volumes went up, they came down again dramatically and in Westminster, prime central London, we saw volumes drop to below 100 transactions in a month to a record low of 84. If Boris Johnson does reduce stamp duty, it would certainly invigorate the top end of the property market and we should see transactions increase,’ he added.

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International Commercial InvestmentProperty market optimistic about new Prime Minister in the UK