U.K. Residential Property: 2009 Predictions

2008 will be remembered as one of the worst U.K. property years in recent memory, according to the BBC News.  As the global credit crunch gripped property markets …

2008 will be remembered as one of the worst U.K. property years in recent memory, according to the BBC News.  As the global credit crunch gripped property markets around the world, housing prices in the U.K. have followed suit and fallen each month since their peak in the Fall of 2007. Sales have plunged by more than half and first time buyers have been chased off the market by lack of mortgage accessibility. The construction industry remains paralyzed by disappearing demand and the market continues to slide deeper into a recession.

By the end of 2008, residential housing prices in the U.K. will be down to the levels of September 2003, according to Knight Frank LLP, an independent global property consultancy. Sales volumes are expected to mark a new low at only 30 percent of their long term average. The sale price of the average house has fallen by approximately £30,000, or $44,000 in current exchange figures, according to BBC News, and owners have stopped taking out home equity loans as the value of their homes plummet.

London falling

Prices in London are falling faster than anywhere else in the country, according to a recent article in This is Money, a finance related news website in the U.K. In November alone, prices declined by an average of £3,500, approximately $5,100 at the current exchange rate. In Hammersmith, one of London’s neighborhoods, a three-bedroom, end of terrace house went for about £400,000 (roughly $590,000) in 2000 and £899,500 (approximately $1.33m) in 2007. Now the price of the same home is at £750,000, (approximately $1.1m) down by almost £150,000 (roughly $221,000).

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The city’s luxury market, which was expected to remain solid, has also fallen victim to the economic downturn. Compared to August 2007 figures, sales of homes valued at £2m ($2.94m) or over were down by some 53 percent this past August, according to This is Money. In 2000, the price of a five bedroom, Georgian townhouse in Wilmington Square was £900,000 (approximately $1.33m). It went up to £2,500,000 (approximately $3.68m) in 2007 and it is now down by £150,000 (roughly $221,000) at £2,350,000 (approximately $3.46m)

Forecast for 2009

Residential sales volumes are expected to recover to 60 percent of their long run average from a low of 30 percent at the end of 2008, according to Knight Frank. No good news in the tea leaves for development land values outside of London:  Down to 30 percent of their highest levels, volumes are expected to drop an additional 15 percent in 2009.

As for the capital city, some analysts are expecting 2009 to bring a further price decline of up to 20 percent in the residential market, according to This is Money. As the deepening economic crisis continues to result in rising numbers of job losses, any sort of recovery in 2009 is looking extremely unlikely for Londoners.

As to when the downward spiral ends, “Our forecast suggests that we will be closing in on the bottom of the market during late 2009, early 2010,” said Liam Bailey, head of residential research, Knight Frank in a statement. “Prices will take some time to recover to their 2007 peak, a process which, on average, will be complete by 2015, led by central London (2012) and concluded by Northern Ireland (2019).” The forecast is based on the assumption that financial institutions will take a more stringent approach towards lending. It also takes into consideration that the U.K. housing market doesn’t suffer from oversupply.

Winners and losers

While homeowners, especially those who have lost their homes, are the clear losers in the current market, there are opportunities abound for clash clad investors looking for bargains. Speculators are entering the depressed markets hoping to score cheap properties, according to Knight Frank. “The winners in this market will be anyone with equity who can buy over the next six months. Those requiring significant finance will be unlikely to be quick enough on their feet. Vulture funds and cash-rich individuals will be the first to benefit,” said Bailey. “It may be hard to stomach but opportunistic buyers are looking for distressed property sellers. They are interested in individual properties—repossessions in particular—and also development land, or even newly completed developments. In fact, anything where values are felt to have fallen as far as they are likely to.”

Buyers are keeping a close eye on the market delaying possible investments until they are sure the market has bottomed out. “There are lots of buyers watching the residential market very closely, and they are desperate not to miss the floor when it comes. Equity backed investors are already active, and more are waiting for prices to correct in the forthcoming months,” according to Bailey.

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