Pricewaterhouse Cooper is predicting big gains for United Kingdom (UK) real estate prices in the coming years. Firm analysts believe the government’s new Help to Buy program will help boost UK residential real estate prices by 3.5% over last year, which will put the country on the path to gains of as much as 20% over the next seven years. Experts note this growth will not be driven so much by prices in prime central London, however, because that slice of the market is determined more by foreign investors who seek safe haven assets. The overall growth is expected to come from mainstream properties that gain value in response to economic forces. For more on this continue reading the following article from Property Wire.
With new confidence seeping into the UK housing market it is predicted that prices could be set to rise by 4% each year until 2020.
The prediction from Pricewaterhouse Cooper would see the price of an average home rising from £225,000 to £300,000.
‘For 2013, we now expect house prices to rise by 3.5% compared to 2012, with the Government’s Help to Buy scheme being one reason for this projected increase. This means that the annual average house price in the UK could reach a little over £223,000 for 2013,’ said Will Zimmern, senior economist at PwC.
‘We expect this upward trend to continue as we head into 2014, with annual average prices reaching around £230,000. Looking ahead, our analysis suggests that the average UK house price could rise by an average rate of approximately 4% per year and, by 2020, could be under the hammer for £300,000,’ he explained.
He also pointed out that prices in the third quarter of 2013 have now surpassed the previous peak in the third quarter of 2007 in cash terms. ‘However, if we adjust for CPI inflation, the average real UK house price is still over 15% below this peak,’ he added.
Meanwhile, national estate agent Strutt & Parker has upwardly revised its forecast for UK house price growth in 2013 to 4.5%. In its latest report it says that prime London residential prices in the third quarter built on growth in the previous quarter and transaction levels in this market are at their highest since 2006.
There does appear to be a disconnect between the very top end of £10 million and above and the remainder of the market, with the former being slowed by both by tax changes and perhaps the head of steam coming off the extraordinary levels of activity seen in 2010/2011.
The firm points out regardless of the performance of the rest of the UK's housing market, prime London and especially the prime central London sector continues to be very different to the rest of the country. Prices in the rest of the UK are mainly driven by economic performance and the cost and availability of mortgages.
‘To a certain extent, this is less true in central London. Instead, the prime central London market is largely driven by international investors looking for a safe haven asset, with London's properties ranking highly on their investment list. Our data for the period October 2012 to September 2013 show that 44% of all buyers in this sector are foreign and this is considerably higher in some submarkets like Knightsbridge. It reflects the high proportion of cash purchases as foreign buyers rarely resort to mortgages to fund their purchase,’ the report says.
‘Looking ahead, the outlook for the prime London and prime central London markets will therefore be impacted by the performance of the global economy, the stance of politicians around the world on global residential investment and the sterling exchange rate. UK assets are likely to remain attractive to foreign investors as downward pressure on the currency persists, although this attractiveness is predicated on buyers believing the currency has bottomed out and/or will be returning to long term norms by the time they wish to sell,’ it adds.
Another factor that is likely to play a part is the pace of recovery in the UK, particularly in the key financial services industry in London. ‘Despite uncertainty over new European rules on bonuses, and dramatic changes in the regulatory framework itself just round the corner, the latest release of UK service sector data suggests the recovery is gaining momentum. Financial services employment has seen strong growth in September, and this is expected to continue into the end of the year,’ the report points out.
‘London is also leading the UK wide growth in the business services sector. A significant improvement in domestic business and consumer confidence is cited as driving the recovery in business services output and employment figures. This trend will continue through the latter stages of the year,’ it explains.
‘Whilst the economic fundamentals would therefore suggest that prices may continue to rise at the same rates over the next few years, the biggest perceived uncertainty surrounding the prime London markets over 2014 to 2015 is the general election. There is likely to be considerable uncertainty for buyers and sellers, particularly around the £2 million price bracket due to the potential change of government and associated possibility of a mansion tax. We expect that price growth in 2014 will be very sensitive to prevailing political press and expectations, and that 2015 may remain quite flat for the same reason, although we expect that sustainable growth will return from 2016 onwards,’ it adds.
The firm predicts that overall it expects prime central London house prices to grow by around 6% in 2013, but to perform less well over the next two years as considerable uncertainty returns. ‘We can look forward to 2014 with greater optimism albeit there will be winners and losers in different price and geographical sectors,’ said Michael Fiddes, head of residential.
His colleague Stephanie McMahon, head of research, pointed out that 2013 has seen the markets pick up across much of the UK and in London specifically latent demand from 2012 has surged through over the summer period. ‘The residential market is so sensitive to uncertainty and political change that our bearish medium term view has significant potential upside both in London and across the UK should confidence be maintained,’ she added.
This article was republished with permission from Property Wire.