Monthly Market Review – May 2013

Despite experiencing the coldest May on record the general feeling this month appears to be one of ongoing positive sentiment, bolstered by a continuation of the upward movement of values in deals being agreed across the prime sector.

Statistical overview

In terms of overall market statistics the general outlook is a positive one with the latest data from Hometrack and the Land Registry showing an overall uplift in values of 0.4%. Hometrack figures also suggest that, due to a significant growth in demand for property, houses are selling faster and for a higher percentage of their asking price.

The market continues to perform on a fragmented basis, and Garrington believes that this is likely to continue to be the case for the foreseeable future. Robust capital values, strong yields and healthy employment figures mean the property market in the South of England is performing well, whilst the Land Registry data shows the North having a harder time, with the North East experiencing a further drop in values in May of 1.6%. As a result our offices in the North are finding that best-of-breed properties in the prime sector are proving harder than ever to come by on the open market, and often transact off-market or in a competitive bidding scenario.

London continues to operate as a separate entity in terms of both demand and increasing values in May. Within Garrington, London is seeing specific areas and properties defy the trend in both directions. Rightmove reports that Camden, Hammersmith & Fulham, Hackney and Wandsworth all grew significantly last month with asking prices in Camden reportedly growing 7.2% in May, outperforming the likes of Westminster and Kensington & Chelsea. Our consultants have seen that those vendors expecting to achieve top value without the quality of property necessary to support it are not securing a sale. Savvy buyers are still optimistic but maintain a keener eye on current market conditions and future values.

Prices up – Transactions down

Whilst the majority of indices demonstrate an upward trend, Garrington believes it is important to remember that this positive performance should be viewed against the current backdrop of reduced year-on-year transaction volumes (Fig 1). When looking at the Land Registry data, which reflects the number of properties actually sold, it can be seen that the market is still only experiencing sales volumes of approximately 50% compared with the same periods in peak years 5-10 years ago. February 2007, for example, saw sales of 86,355 properties across England and Wales compared with February 2013 which saw only 43,573 sales complete. The peak in volumes since 2000 was in July 2002, when the Land Registry recorded 129,491 sales – almost 3 times the February 2013 figure.

Given the fact that positive sentiment is so high why then do we continue to see lower year-on-year transaction figures? Garrington believes that ‘transactional lag’ is likely to explain this. The data issued recently relates to deals that were probably agreed at the end of 2012 or the early part of this year, before the market had gathered the momentum we are seeing currently. Whilst the last five years have seen relatively flat transactional volume levels, it will be interesting to see if there will be a dramatic trend reversal as the current market activity starts to be reflected in the volume figures issued over the next 2 months.

Investors key priorities

Investment in UK property continues to be an increasingly attractive option with LSL figures demonstrating an uplift in rents in every region of the UK (3.9% year-on-year) in their latest report (Fig 2). Their prediction is for an ongoing upward trend in rental values to the end of the year, and for the current average yield of 5.3% to improve over the period.

Garrington has noticed a marked increase in the number of clients enquiring about investment services, and the number of existing and previous clients looking to diversify their cash out of equities and into property assets.

There has also been a definite change in the profile of the investment buyers Garrington is working for. Clients now come to Garrington looking to buy investment property across all price brackets, ranging from £250,000 to £2,500,000. Also of note is the shift in the motivations of investment buyers. Longevity and consistency are key priorities as investors seek long term capital growth over and above impressive short term returns.

The other point to highlight is that, whilst many lower value areas now offer respectable yields, investors and lenders will always demonstrate a bias towards those areas that offer high levels of liquidity and are insulated from general market conditions such as London, The Home Counties and popular university cities.

Summer Outlook

With a seemingly buoyant market supported by daily reports of positive growth, Garrington believes that the property market is likely to continue to demonstrate upwards movement in the prime geographical and high value areas. With many parents now under time constraints to move before the commencement of the next academic year, we feel that the early summer will see a flurry of activity with deals agreed swiftly and committed buyers ensuring transactions reach their conclusions.

With the remainder of the year looking more ‘normal’ and with no obvious events to ‘stall’ the market, such as Royal Weddings, Jubilee Celebrations or Olympic Games in the calendar Garrington believes we are more likely to see sustained levels of market activity throughout the summer period.

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