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hyenergix
19-05-14, 06:39
Signs show London residential property market has peaked
Prime properties see price resistance as Asian buyers grow wary
BY NEIL BEHRMANNIN LONDON
PUBLISHED MAY 19, 2014

AIR is beginning to leak from the London residential property balloon.
Moreover, anecdotal reports indicate that Asian and other foreign buyers are no longer rushing to buy prime London properties following the surge in prices, the jump in sterling in the past year, threats of taxation and the Bank of England's potential anti-bubble moves.

"The UK prime residential market has continued to perform well with year- on-year increases in both volume and value," said Jeremy Helsby, group chief executive of Savills in the estate agent's trading statement last Monday. "(But) we have lately seen some cooling in the prime and super prime central London market."

Indeed, a count of some 600 properties on sale above £2 million (S$4.2 million) on the websites of upmarket agents Savills and Knight Frank shows that only 9 per cent have been sold and only a further 14 per cent of potential buyers have agreed on an "on offer" price, but so far have not exchanged contracts with sellers.

Of some 162 properties over £10 million with the highest price in Knightsbridge of £68 million and several of £20 million to £30 million, the sites show that a mere 3 per cent have been sold. Officials of the firms contend that some sales have not been reported on the firms' sites, but despite those claims, the figures are an indication that price resistance is becoming evident.

The big question is if and when and by how much sellers may decide to cut prices. The London and UK markets over the years have experienced several booms and downturns. Examples of a damaging bust occurred in the mid-1970s and slides took place in the early 1980s, the first few years of the 1990s and the Great Recession of 2008 to 2009. Prices then stabilised because of the Bank of England's quantitative easing (QE) and ultra low interest rates. Foreign buyers, especially European, started the current boom during the euro crisis of 2010 to 2012.

The overall market took off last year after UK Chancellor of the Exchequer, George Osborne, precipitated a buying panic with government-subsidised loan schemes. After being gloomy or cautious from 2009 to 2012, property industry participants and experts at events such as the early April annual Wriglesworth property conference became overwhelmingly bullish from the second half of last year onwards.

In recent weeks, however, more caution has prevailed. For a start, the Bank of England has warned that it could act to prevent a bubble and interest rate hikes may come sooner than expected. Via much tighter mortgage standards, banks and other lenders are asking potential borrowers much more detailed questions on their ability to finance mortgages in the event of rising interest rates.

Long-overdue legislation for capital gains taxation (currently 28 per cent) on foreign purchased properties is expected to take place for appreciation after 2015. Ed Milliband, leader of the opposition Labour Party, has also hinted that if he wins the election, he would tighten regulation of landlords and consider forms of rent and tenure controls similar to Germany's successful rental regime.

Both Doris Tan, Singapore-based director of real estate services firm Jones Lang LaSalle, and Marc von Grundherr, London-based lettings director of estate agents Benham and Reeves, agree that Singaporeans and other Asian investors have become wary of pricey London property.

Ms Tan, however, contends that apartments in the range of £250,000 to £500,000 remain popular with investors. Mr von Grundherr estimates that foreign investor buying of properties above £2 million has fallen considerably but that interest in real estate below £1 million remains as high as last year.

Mr Helsby of Savills also maintains that "there remains strong demand for property in the £1 million-£2 million price segments of the North, East and South West London regions. The regional UK residential market is continuing to recover with growing volumes and a significant increase in buyers registering with Savills".

"The strong price growth in London and the South East and other parts of the UK is underpinned by a lack of supply, both new delivery of homes and a lack of second hand stock," says Grainne Gilmore, head of UK residential research at Knight Frank.

The question, however, is for how long? Especially since the vast majority of locals have been priced out of the market and foreigners have become wary. Indeed, independent economists query whether Singapore, Hong Kong and China buyers will step back given price corrections in their own markets. Why take a risk on a distant foreign market which is both expensive in price and currency following sterling's appreciation of more than 10 per cent in the past year.

John D Wood & Co's residential property price indices - based on sales data from all leading agents and compiled independently by Nuffield College (Oxford) and the London School of Economics - indicate that on average, house prices in prime London areas have risen by 34 per cent above the 2007 bubble peak and apartments by 57 per cent. Landlords, both local and foreign, are relying on further capital appreciation as gross rental yields on houses and apartments have fallen to 2.2 to 2.7 per cent. After maintenance, management fees, other expenses and voids, net yields are minuscule at 1.2 to 1.7 per cent.

"Property developers and agents talk about foreign buying, but how many are taking profits and selling?" asks Ed Stansfield, head of property research at Capital Economics. "Net sales to foreigners should be the gauge."

Tom Bill, associate researcher at Knight Frank, says that ahead of a rise in political campaigning for the May 2015 UK general election, "more owners have started to explore a sale". A likely increase in supplies in the next few months could dampen price growth in prime central London, he believes.

http://www.businesstimes.com.sg/premium/top-stories/signs-show-london-residential-property-market-has-peaked-20140519

hyenergix
19-05-14, 06:41
BOE's Carney warns about British housing bubble
Biggest structural problem is insufficient building of new homes
PUBLISHED MAY 19, 2014

[LONDON] Bank of England (BOE) governor Mark Carney gave his strongest warning to date about the risks of a housing bubble and said that the central bank was looking at new measures to control mortgage lending amid a shortage of home building.

The British housing market has "deep, deep" structural problems, chief among them insufficient construction of new homes, Mr Carney said in an interview with Sky News television broadcast yesterday. "When we look at domestic risk, the biggest risk to financial stability, and therefore to the durability of the expansion, those risks centre in the housing market and that's why we are focused on that," he said.

Helped by a recovery in the economy, record-low interest rates and government schemes to help home buyers, British house prices jumped about 10 per cent in the 12 months to April, raising concerns that buyers will take on too much debt.

Mr Carney has previously said that the BOE will seek to use its new powers over credit before it resorts to raising interest rates.

He made clear yesterday that he saw the biggest problem in the property market as the shortage of new homes, saying that twice as many houses were built each year in his native Canada than in Britain which has double the population.

Construction started on more new homes in England last year than at any point since 2007. But at 123,000 units, house-building remains short of the 200,000 which many economists consider to be the minimum needed each year. "We're not going to build a single house at the Bank of England, and we can't influence that," Mr Carney said.

Also speaking to Sky News, Prime Minister David Cameron said that Mr Carney was "absolutely right" to point to the lack of housing but said that government programmes were helping to get more built.

Britain has already toughened up checks for banks on mortgage applications, and the BOE may take more measures as soon as next month.

The Bank was looking at the possibility of recommending that banks do more to limit the size of mortgages based on the incomes of borrowers, a potentially controversial move by the BOE that could be felt by many would-be homeowners, Mr Carney said.

"The level of higher loan-to-income mortgages, ones above four-and-a-half, five times loan-to-income, potentially could store up bigger problems for the future and we need to be careful . . . We need to be calibrated, we need to be proportionate, if we were to suggest some adjustments to the amount of these types of mortgages that banks should underwrite," he said.

He also said that the BOE would be concerned if there was a rapid increase in high loan-to-value mortgages. "We've seen that creeping up, and it's something we're watching closely."

Earlier this month, the Organisation for Economic Cooperation and Development (OECD) called on Britain to consider scaling back a state mortgage guarantee scheme launched last year by the government under its Help to Buy programme.

Mr Carney said the BOE was checking the programme, which helps people get on the property ladder with only a small down payment, did not encourage risky lending by banks more broadly. "It's a pretty targeted programme, it's a relatively small programme at this point but it could grow a lot and it could change attitudes in other parts of the mortgage market, that's why we have to be vigilant," Mr Carney said.

Asked about other risks to Britain's economy, Mr Carney mentioned weak demand in the eurozone and "persistent strength of the currency". He also said that low levels of volatility in financial markets could pick up, pushing up borrowing costs. - Reuters

http://www.businesstimes.com.sg/premium/world/boes-carney-warns-about-british-housing-bubble-20140519

minority
19-05-14, 07:59
They will need a ABSD and a TDSR