The property market is in a healthy state, but challenges remain
The last few years have been a tricky period for homeowners and investors alike, with Brexit casting a shadow of uncertainty over all aspects of the UK economy. Although the UK’s withdrawal from the EU has now been set for October 31, deadlock reigns in Westminster and a potential resolution to the current debacle seems unlikely to come anytime soon.
Although Brexit uncertainty has led to some pessimistic predictions about the future state of the real estate market, recent figures suggest that demand for bricks and mortar stands resoundingly strong. Indeed, new reports have shown house prices rebounding in April: Halifax, the UK’s largest mortgage provider says prices rose by 1.1% month-on-month in April.
At MFS, our own research confirms that investor appetite for property has not been dampenend by Brexit. Having surveyed over 500 property investors at the beginning of 2019, we found that 64% have not let Brexit impact their property investment decisions. So, if the story can’t be entirely explained in terms of a Brexit slowdown, what are the key trends shaping the UK housing market at the present time?
The Key Trends
For all the forecasts of Brexit frightening away foreign investors, searches for UK property by overseas investors have actually increased this year. Property portal Placebuzz found that over the first three months of 2019, 6.2% of all their activity was generated by overseas buyers compared to 3.6% in the same period in 2016. This reflects the solid fundamentals of the UK property market, retaining its appeal to overseas investors despite Brexit.
To a large extent, this is a direct result of high demand for prime property in highly sought-after precincts. Real estate firm Knight-Frank reports an 11.3% increase in the number of prospective buyers registering in prime central real estate. Moreover, the prime property market is expected to get a significant boost once Brexit is resolved. Understandably, vendors have been acting cautiously due to Brexit which has seen the number of new listings decline by 12.5% in the year prior to March 2019. This reflects a pent up demand which should see the market rise further once the political stalemate ends and investors feel more comfortable making significant financial commitments.
While the continued resilience of prime property market has been a positive through this uncertain period, I think the most significant trend has been the consistent rise in demand for property in the North of England and the Midlands. In Birmingham, both commercial and residential property are performing exceptionally well with office take-up reaching a record high of 194,014 sq ft for the first quarter of 2019 and the price of an average house hitting £188,254 at the end of January. That’s a 5.8% rise compared to the same point of 2018. The fact that Birmingham property in particular is performing so well reaffirms just why the city is becoming a popular destination for all types of property buyers, ranging from first-time homebuyers to seasoned buy-to-let investors.
Solving the Housing Crisis
While recent news might present cause for property investors to be cautiously optimistic, there remain significant structural challenges that the government needs to address. Most pressing is the current imbalance between housing demand and supply which is a direct result of the country’s low housing stock. The issue has been on the government’s radar; last year Theresa May pledged to build 300,000 new homes every year by the mid 2020s but the target has attracted criticism for simultaneously being insufficient and for being too ambitious. 71% of Tory council leaders have expressed concern about whether this will meet the needs of their constituents while less than half of housebuilders surveyed consider the target achievable.
One thing is clear however – the government’s inability to resolve Brexit has presented an obstacle to them addressing domestic challenges like housing. The fact that Housing Minister Kit Malthouse MP is more famous for his namesake Brexit compromise than for any policy achievement shows how the government’s focus is very much on finding a political resolution to Brexit and not on addressing bread and butter issues. It’s absolutely imperative that policy makers turn their attention to the property market and use the period leading up to our October 31 departure date to address the structural problems which are leading to more and more people struggling to jump and move up the property ladder.
For the time being, it is up to the market to provide some type of solution. For savvy developers and investors, one potential opportunity comes in the form of over 216,000 UK homes currently sitting unoccupied across the country. Refurbishing these properties and putting them back onto the market represents a relatively cheap and effective way of making a significant step towards expanding housing stocks. Indeed, this is something Market Financial Solutions has been passionately arguing for over the last two years, offering much needed leadership and guidance in an often neglected seciton of the market.
Brexit has certainly represented an impediment to market performance over the last three years, but it’s important for buyers and sellers to bear in mind that the long-term outlook remain positive. Ultimately, the end of Brexit is in sight and the property market is primed to improve once vendors and investors abandon their “wait and see” approach. Moreover, the markets are increasingly offering new financial opportunities to help support an active market. All that’s left is for the government to start backing up their housing commitments with real action.
Paresh Raja, CEO of Market Financial Solutions