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Savills Research | Residential   August 2009

The evolution of the
property market
How the w...
This publication
This document was published on August 1. It contains a review of all the key housing
market indicators an...
Savills Research | Residential Property Focus                                                                             ...
Savills Research | Residential Property Focus                                                                             ...
Savills Research | Residential Property Focus                                                                             ...
Savills Research | Residential Property Focus                                                                             ...
Savills Research | Residential Property Focus                                                                            A...
Savills Research | Residential Property Focus                                                                            A...
Savills Research | Residential Property Focus                                                                          Aug...
Savills Research | Residential Property Focus                                                                             ...
Savills Research | Residential Property Focus                                                                         Augu...
Savills Research | Residential Property Focus                                                                             ...
Savills Research | Residential Property Focus                                                                             ...
Savills Research | The Residential Property Focus                                                                         ...
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Savills Global Residential Property Focus August2009


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Savills Global Residential Property Focus August2009

  1. 1. Savills Research | Residential August 2009 Residential Property Focus The evolution of the property market How the world of residential property is changing Savills Research
  2. 2. This publication This document was published on August 1. It contains a review of all the key housing market indicators and news to the end of July 2009. The data used in the charts and tables is the latest available at the time of going to press. Sources are included for all the charts. We have used a standard set of notes and abbreviations throughout the document. Glossary of terms n Mainstream – mainstream property refers to the bulk of the UK housing market with, for example, price movements monitored by reference to national and regional average values. n Prime – the prime market consists of the most desirable and aspirational property by reference to location, standards of accommodation, aesthetics and value. Typically it comprises properties in the top five per cent of the market by house price. n Patient equity – non-income generating long-term investment. The most commonly used abbreviations are: n Q109 – refers to the first quarter of 2009 n H109 – refers to the first half of 2009 n PCL – prime central London n Peak – refers to the first half of 2007
  3. 3. Savills Research | Residential Property Focus August 2009 Foreword The evolution of the property market Just how indelible a mark will the current downturn leave on the industry? Yolande Barnes believes that the residential property market must now adapt. T here is little doubt that the credit The final, and only constant, evolutionary crunch has changed the housing force in the housing world is a continuing Inside this edition… market. However, the uncertainty is mismatch between the number and type of whether the change is permanent new households requiring shelter, and the or temporary; and if it is the latter, will it number and type of new homes actually 04 Prime markets Central London leads the way be long-lasting or short-lived? There may being built. The debt drought will only feed have been a springtime bounce but anyone this stock shortage as housing starts fall to in the residential property industry who unprecedentedly low levels. 06 Mainstream market expects a return to ‘normal’ is waiting for What is the significance of the a ship that we think sailed long ago. Evolve or die out? recent upturn in house prices? Our analysis suggests there are three Drawing analogies between the biological primary forces that could shape the future sciences and the world of development 08 Regional forecasts of the housing market, but we only have a finance and housing delivery may seem Annual forecasts for regional precedent for one of them. When it comes tenuous but, on the 150th anniversary of house price growth to housing ownership, development and his seminal publication, business gurus delivery, things haven’t been ‘normal’ for a are very fond of quoting, or misquoting, 09 Rental market while now. Charles Darwin: “It is not the strongest of What is the legacy of the credit Even before the credit crunch, at the the species that survives, nor the most crunch on this market? height of the boom, the structure of market intelligent, but the one most responsive to demand was changing. This change, in change,” they say. This may be true, but a 10 Development land conjunction with a shortage of debt and a successful response to change depends A two-tier market is established shortage of housing, will shape the future of on an accurate understanding of what that the UK residential property industry for change is. at least the next decade. It may be appropriate to note that 12 Coastal property The future of coastal premium Looking at evolutionary forces in the scholars have criticised this interpretation housing and development markets, we of Darwin’s theories. They believe it is not see that a tectonic shift took place in the the species that are most responsive to 14 Summary ownership of residential property long change which can survive but the ones before the sub-prime crisis took hold. that have luck or already possess the Mortgaged owner-occupiers started to right features to be passed on to the next decline, as a proportion of all tenures, generation. As Darwin states in On the as long ago as 1992; their absolute Origin of Species “those which do not numbers were declining from the change will become extinct.” millennium onwards. Since then, the If we transfer this statement into the numbers of outright owners and the realm of property, it means those best number of private renters have exploded. placed to take advantage of the post credit We are in a new era where private crunch environment are those who were occupiers divide into two groups: those already starting to evolve or who were with equity and those without. An ready to evolve before the economic crisis. increasing number of relatively affluent Those investors and developers with low households are unable to access the debt levels, special skills and access to Yolande Barnes is a Director of Savills housing market for lack of sufficient equity are the most likely to become new residential research. She joined Savills deposit. Ownership in coming decades will and successful species in coming decades. in 1989 to pioneer the then-new field of be in the hands of those with equity (either In this issue of Residential Property residential research. Since 2003, Yolande corporate entities or individuals) and the Focus, we examine the nature and the has also taken on another new research potential market for private renting and characteristics of the changed property discipline known as Place Making, looking co-ownership is huge. environment as well as how the industry into mixed-use and land issues. The second, and more obvious, change may be able to adapt and find opportunities is to be found in the lending climate within it. What is clear is that even if it takes that has come after the credit crunch. A a different form, demand will return as the continued drought of debt finance can be market evolves. With inherently limited expected, impacting not only the cost and stock this means a recovery in the housing Yolande Barnes availability of mortgages but also, most market is inevitable. The question is, Director especially, the finance that is available to how much more change is needed to 020 7409 8899 house builders and developers. sustain that recovery? n savills 03
  4. 4. Savills Research | Residential Property Focus August 2009 Prime markets Central London leads recovery With improved buyer sentiment emanating from the capital, Lucian Cook illustrates how increased activity in central London influences the UK prime market as a whole. U pholding our expectations, prime Table 1: Prime central London projected peak to trough central London has so far this New forecasts H1 2009 Current Projected year, led the recovery in values in (as at July 2009) From Peak Peak to Trough the UK residential market. By the Scenario 1 end of June Savills prime central London Stock levels ease in the Autumn index showed that values in central and no further significant financial shocks 0.1% -19.8% -25.0% south west London had increased by 4.3%, their first growth since Autumn 2007. Scenario 2 Further financial shocks further increase City This growth came largely on the back of a unemployment eroding current demand 0.1% -19.8% -30.0% shortage of quality housing combined with a growing pent-up demand. Table 2: Prime central London year-to-year growth Beyond London, where the imbalance between demand and the supply of New forecasts 2008 2009 2010 2011 2012 2013 2014 (as at July 2009) (Actual) appropriately priced stock has been less pronounced, values have stabilised over Scenario 1 the past few months. But in the markets Stock levels ease in the Autumn most influenced by London, including the no further significant financial shocks -18.3% -3.4% -0.6% 8.0% 13.9% 10.0% 7.0% commuter strongholds of Surrey and Kent Scenario 2 and established prime areas in the south Further financial shocks further such as Bath and Winchester, there have increase City unemployment been small increases in values. eroding current demand -18.3% -6.9% -3.4% 9.1% 16.1% 10.0% 7.0% While the economic fundamentals remained largely unchanged, there was a of potential buyers took the view that west London, but this has filtered through noticeable shift in sentiment among buyers the market represented good value. This into the higher price bands and across a during the second quarter of 2009. At change in sentiment gathered momentum wider geographical area. the turn of the year, buyers were waiting as buyer and seller expectations became Therefore, it remains too early in the for signs that the market was sufficiently more closely aligned and transaction recovery process for improved sentiment to close to the bottom, but as ‘for sale’ numbers improved as a result. Initially, bring discretionary sellers into the market. boards became increasingly replaced with activity picked up in the £500,000 to The resultant shortage of property available ‘sale agreed’ boards a growing number £1 million price band, particularly in south has meant that the predominantly cash-led Graph 1.1 Graph 1.2 Restored demand translates into price growth London leads increase in transactions Prime central London q/q growth Applicants per Property London All Viewings per Property Regional All 16 10% 180% 8% 14 160% Transactions as a % of monthly average 6% 12 140% 4% 10 120% 2% 8 0% 100% -2% 6 80% -4% 4 60% -6% 2 40% -8% 0 -10% 20% Q1 05 Q3 05 Q1 06 Q3 06 Q1 07 Q3 07 Q1 08 Q3 08 Q1 09 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Source: Savills Source: Savills 04 savills
  5. 5. Savills Research | Residential Property Focus August 2009 The ripple effect Average Residential Value 2008 n Over £500,000 n £400,000 to £500,000 Fulham and Barnes Av £ per sq ft 631 Central London Av £ per sq ft 1,392 Last Quarter 3.42% Last Quarter 4.30% Following the trends n £300,000 to £400,000 n £250,000 to £300,000 Off peak -24.3% Off peak -19.8% Overseas buyers 19.3% Overseas buyers 48.6% across the south n £200,000 to £250,000 n £150,000 to £200,000 Employed in the Employed in the City of London 65.7% City of London 56.7% T n Under £150,000 n All others Employed in London 81.3% Employed in London 61.7% he ’ripple effect’, whereby market trends that often start in prime central London and filter progressively out into the other Maidenhead prime and mainstream markets of the UK, is currently making its way through the wealth corridor of south west London and running into Surrey (see Richmond chart), where a dramatic improvement Staines in market conditions was reflected in our Bracknell Kingston upon Thames end-of-June indices. Along this corridor average house prices often exceeded £500,000 even during the depressed market conditions of last year. It is however too simplistic Woking to say that what has occurred in prime central London will naturally filter Farnborough through into prime south west London Aldershot four weeks later and in another four Guildford weeks hit the Surrey Hills. It is important to take into account the different nature of these markets and, therefore, who is buying into them. The improvement in sentiment in the prime south west London markets was Crawley fuelled by those looking for good-quality family accommodation and price growth in Wandsworth, Clapham and Putney Guildford etc Elmbridge Wandsworth etc Av £ per sq ft 368 Av £ per sq ft 418 Av £ per sq ft 496 has been strongest. Similarly Elmbridge, Last Quarter 0.7% Last Quarter 4.41% Last Quarter 9.02% having a similar demand profile but Off peak -16.4% Off peak -19.1% Off peak -19.7% offering an additional trade-off between Overseas buyers 8.0% Overseas buyers 15.5% Overseas buyers 11.8% commuting time and cost per square Employed in the Employed in the Employed in the foot, has shown higher growth than both City of London 17.3% City of London 50.0% City of London 72.8% Employed in London 54.1% Employed in London 72.6% Employed in London 88.7% prime central London and Fulham. n buyers who have returned to the market test will come in the autumn, when more circumstances cause prices to fall further. have been chasing a shrinking supply of stock is expected to be marketed. This Reduced availability of bonus cash from stock, and this has intensified the recent will test the actual depth of the current the financial sector, which has traditionally price increases recorded in the prime improvement in sentiment. accounted for half of all buyers in the prime London markets. An improvement in the economic London markets, could also play a part. The prime markets of central and outlook, particularly city employment Irrespective of any short term price south west London, despite the recent projections, would go some way to movements, we consider recent improved price increases, remain -19.8% and ensuring the current momentum is carried purchaser activity means we have reached -20.4% respectively off peak, while the straight through into the autumn and would the first stages of recovery in the prime prime regional markets are currently at help sustain current prices. markets. Even if these price increases a similar level, being -19.2% off peak. At the moment, demand continues prove to be temporary they are, as history These price falls have been enough to to gather momentum and an increased relates, a natural and relevant part of the maintain the growth in demand during the stability in prime central London residential bumpy bottoming out process. n early summer months as buyers, whether rents willl add further weight to market they be investors or owner-occupiers and confidence. This gives rise to the potential Lucian Cook joined the research team irrespective of whether they are buying for price falls to be less pronounced than in 2007. He is a qualified chartered in sterling or a foreign currency, remain we have previously envisaged. Conversely, surveyor with over 13 years of professional conscious of the need to secure value. a worsening economic outlook could lead experience. He has established himself With the prime markets returning to to an erosion of the recent price growth as a leading commentator on residential a more seasonal selling pattern, the true by the year end and in more extreme property issues in the press. savills 05
  6. 6. Savills Research | Residential Property Focus August 2009 The mainstream market A new beginning for mainstream? Recent price increases denote the mainstream housing market has turned a corner but the key question says Yolande Barnes is, what is around that corner? S ince March, the principal monthly rise, however, was just a temporary blip, Mortgage approval figures bear testament mainstream UK housing indices it took until the first quarter of 1993 before to the fact that this increased demand has have shown tentative signs of life, the bottom of the trough was reached. been driven largely by cash buyers. In 2006 with growth in values recorded According to Nationwide figures, values and 2007 we estimate that, on average, during some (but not all) months; a first had fallen by some 20% over three and cash buyers accounted for 23% of the since 2007. The resulting 2.9% increase a half years. Sustained growth was not a market. In the first quarter of this year they in the Nationwide house price index in feature of the market until the beginning accounted for nearly 36% of the market, the second quarter (equivalent to 1.1% of 1996. rising in May (the most current data at the on a seasonally adjusted basis), has been While recession has played a part in time of going to press) to an estimated accompanied by a halt to the dramatic both downturns, undoubtedly the current 40% of all purchasers across the UK decline in housing transactions witnessed situation differs to that of the early 1990s; housing market as a whole. during 2008. According to Inland Revenue as heavily restricted mortgage availability As a result the balance between supply data, by May those transactions had rather than affordability has been the and demand has been restored (although increased by more than 50% from their primary trigger for price falls. This has led both are well below peak levels). The key nadir in February, even though they to prices falling far more quickly; it took just question is whether price increases are a remained 32% below those seen for the 16 months for the 20% price falls recorded temporary blip or the start of something same month a year earlier. by the end of February to occur. more meaningful. Undeniably, the UK housing market We can be confident that prices really has turned a corner with a noticeable Rise and fall have reached the bottom, and that growth improvement in buyer sentiment. However, The severe constraints on accessibility can be sustained over the long term, when it remains less clear as to what lies around to mortgage finance during the present mortgage availability improves along with that corner. In order to establish what downturn have contributed to a much more the prospects for economic growth. the future holds it is essential to look at marked fall in transaction numbers, which This will allow equity-rich buyers to be what has prompted these recent market have declined from a peak of 160,000 per joined in the market by those whose improvements and whether the past can month in August 2007 to just 41,000 during property purchase is reliant on a mortgage. provide any clues. January 2009, with sales restricted to those While we are beginning to see the In the early 1990s house prices needing to sell. Precious few new sellers re-emergence of a limited number of decreased by a total of 13.1% over six have brought stock to the market, creating mortgage products with more than 75% successive quarters, a quarterly rise of a shortage of available property when loan-to-value (LTV), accessibility to these (1.6%) followed in the spring of 1991. This demand started to improve in the spring. products remains heavily constrained and Graph 2.1 Graph 2.2 UK house prices follow supply of credit Deposit affordability issues for first time buyers Quarterly Price Growth (RHS) Home Mover Deposit as % of Income FTB Deposit as % of Income Supply of Secured Credit (LHS) Home Mover Interest as % of Income FTB Interest as % of Income 20 2% 180% 36% 10 1% 160% 32% 140% 28% 0 0% Deposit as a % of income Interest as a % of income Balance of Opinion 120% 24% Quarterly Growth -10 -1% 100% 20% -20 -2% 80% 16% -30 -3% 60% 12% -40 -4% 40% 8% -50 -5% 20% 4% -60 -6% 0% 0% Q2 07 Q4 07 Q2 08 Q4 08 Q2 09 Q1 1980 Q1 1986 Q1 1992 Q1 1998 Q1 2004 Q1 2010 Source: Bank of England, Nationwide Source: CML / Savills 06 savills
  7. 7. Savills Research | Residential Property Focus August 2009 competitive terms tend to require that ‘It can’t get any worse’ Despite the uncertainty the buyer finds, at the very least, 25% Among the equity-rich it is no surprise cash or equity. As prices bottom out, it is that sentiment has improved at the same over employment, because anticipated that lenders will become more confident in offering higher LTV ratios time that forecasts for the economy have bottomed out. This has allowed those affordability has dramatically as their exposure to price falls reduces. taking the view that ‘it can’t get any worse’, over-corrected we believe However, access to credit, despite low and who have financial security, to now interest rates, remains constrained make decisions on whether, and at what that any further falls will not throughout the economy. price level, to buy. be significant. For those more exposed to the vagaries Significant developments of the economy, the confidence to buy The effective closure of the securitisation may take much longer to return. It is credit constraints ease, are central to our markets, which increasingly underpinned important to note that unemployment forecast of the possibility of several years mortgage availability through the boom of numbers are not expected to peak until of continued house price growth, once the 1997 to 2007, means that restoring liquidity 2010 and the general consensus is that market conditions allow for a sustained in credit could be a long and drawn-out significant economic growth will not return improvement in demand across a wider process. Deposit affordability will therefore until 2011, when mainstream recovery can range of buyers. While five-year fixed rates remain an issue for many for some time to only follow on. have risen, the indications are that this come. As shown in Graph 2.2, there is a In such circumstances it is difficult to remains a very realistic assumption, even significant difference between the change rule out the possibility that prices will fall if lenders’ margins settle at a figure higher in the affordability of mortgages and further by the end of this year. However, than the long-run average. n deposits for first-time buyers. because affordability has dramatically As a result, at the bottom end of the over-corrected we believe any further falls market there is likely to be a shift in the will not be significant. We stick by our fundamentals of home ownership. Without forecasts for a total fall not exceeding 25% developments in shared equity investment from peak to trough. models, renting will be the only option The assumption that bank base rates for the deposit starved. This suggests a will remain below 4% until 2013 and that greater role for institutional investment. lenders’ margins will gradually reduce as savills 07
  8. 8. Savills Research | Residential Property Focus August 2009 The mainstream market Regional Table 3 New forecasts H1 2009 Current Projected Forecasts (as at July 2009) UK -1.8% From Peak -16.3% Peak to Trough -24.9% Table 3: Regional price falls London -0.6% -15.6% -25.3% in the mainstream market South East 0.0% -15.7% -24.7% from peak to trough including South West -2.1% -17.3% -25.4% H109 falls East 0.2% -16.6% -25.1% E Midlands -1.9% -16.8% -26.4% Table 4: Savills annual forecast for house price growth in the W Midlands -2.5% -16.3% -26.0% mainstream market North East -5.2% -16.5% -26.2% North West -3.2% -17.2% -26.0% Yorks & Humber -1.5% -15.8% -26.0% Wales -1.4% -13.3% -26.6% Scotland -3.3% -11.9% -19.6% Table 4 Projected peak to Forecasts 2008 2009 2010 2011 2012 2013 2014 trough forecasts (as at July 2009) (Actual) n -18% to -24% UK -14.7% -7.2% -3.1% 1.0% 9.0% 10.0% 8.0% n -24% to -25% London -15.1% -7.5% -2.6% 2.8% 12.0% 10.0% 9.0% n -25% to -26% South East -15.4% -6.0% -3.1% 4.9% 14.0% 10.0% 8.0% n -26% to -28% South West -14.9% -8.0% -2.1% 2.8% 9.0% 10.0% 10.0% East -16.6% -6.3% -2.1% 2.8% 8.0% 12.0% 12.0% E Midlands -14.2% -8.7% -3.1% 0.8% 8.0% 12.0% 12.0% W Midlands -14.0% -9.3% -3.1% 0.8% 6.0% 10.0% 12.0% North East -11.0% -11.8% -3.1% 0.0% 1.0% 6.0% 8.0% North West -14.4% -9.9% -2.1% 0.0% 1.0% 6.0% 8.0% Yorks & Humber -13.6% -9.3% -2.6% 0.8% 2.0% 6.0% 12.0% Wales -12.1% -11.2% -6.0% 0.8% 6.0% 6.0% 8.0% Scotland -8.1% -8.1% -2.1% 2.0% 8.0% 12.0% 10.0% Scotland: Smallest projected peak to trough fall of -19.6% North East: Values start recovering in 2012 with growth of 1% Yorks and Humber: Fall of -1.5% in H109, growth is forecast to start in 2011 West Midlands: Growth forecast for 2011. Projected peak to trough -26% The East: Strong growth of 12% forecast in 2013 and 2014 London: 2.8% growth forecast for 2011 South West: Growth forecast above UK average in 2011 Source: Savills 08 savills
  9. 9. Savills Research | Residential Property Focus August 2009 Rental market Signs of change in the rental market With positive signs re-emerging in the rental market, Marcus Dixon looks ahead to the lasting legacy the credit crunch will have on the sector. T he credit crunch has had a profound effect on the UK residential rental market with many sellers frustrated by the lack of buyers and opting to find a tenant instead. According to, this has led to the volume of property available to rent increasing by more than 3.5 times since January 2008. Even with this increase in rental stock levels, average asking rents across the UK have not fallen by anything like the rate seen in capital values at a national level. While UK house prices are currently 16.5% down from their peak in 2007, average rental values, which started to fall in the late summer of 2008, were just -5.7% off their peak by June of this year. On a sector or regional level, the depth of falls has been largely dependent upon the capacity of a given market to absorb the additional stock that has become available. For example, the mainstream flat market is now a haven for households frozen out of ownership because of deposit affordability, and rents in this sector have, therefore, fallen by less than the average. By contrast, in the prime markets of south east England, where renting is far less common, a relative deluge of stock has caused rents to fall by -24.2% according to our own indices. The extent to which these different rental markets have absorbed the increased stock levels has been linked to the economic drivers that underpin demand within the rental sector. Even with the increase in the pressure and suggests that, provided Within prime central London the fall in household earnings are not significantly demand from corporate tenants has been properties available, average diminished, rental growth will follow. a key factor in rental falls of -11.7%, while In turn this will help bring cash-rich the market in the Docklands and Canary asking rents across the UK investors and institutions back into Wharf, which is even more reliant on have not fallen by anything the residential investment market, and demand from the financial services sector, simultaneously help underpin the recovery has seen rental falls of just under -20%. like the dips seen in capital in capital values. values at a national level. Ultimately, we expect one consequence Positive signs of the downturn to be the end of the Like the sales market there now are signs assumption that renting is an unfashionable of change in the rental sector. In June, Looking forward, the expectation that necessity, only to be contemplated when recorded the first loan-to-value ratios will remain low means buying is an impossibility. n monthly increase in nationwide asking deposit-shy renters are likely to grow in rents since August 2008, while in central number, even if government estimates for Marcus Dixon is an Associate Director London our indices indicate rental values future household formation are overstated of Savills having joined the research of prime property stabilised. In part, this in the short term. Household numbers department in 2003. Marcus specialises is due to fall in the number of accidental will continue to grow, putting demand in consultancy projects for developers, landlords, allowing a balance to be restored on existing rental stock. A decline in the investors and lenders concentrating on the between supply and demand. levels of new development will add to sales and lettings market across the UK. savills 09
  10. 10. Savills Research | Residential Property Focus August 2009 Development land A two-tier market is established The distinction between low-risk projects and longer-term development opportunities has changed the way the market works, as Jim Ward observes. T he latest housing statistics suggest In contrast to the greenfield development the brownfield land market in the run-up to that new residential development land market, urban development land the millennium, forcing a re-think on urban activity is starting to stabilise. values between 2004 and 2007 have land values within the industry. However, starts are likely to have effectively remained static for several fallen to around 70,000 in England by the reasons: the sector was already fully valued Future sales rates end of 2009, just over 60% less than the as many players had already acquired Despite a lack of growth in the back peak levels reached in 2006. As residential end of the housing cycle, values of such turnover continues to build, we expect development land have still fallen by -57% starts to pick up in 2010, in anticipation of It is encouraging that the since the peak in the UK housing market in a more significant market recovery in 2011. the Autumn of 2007, which is slightly more However, during this period and sales rates of new homes than that seen for greenfield land. beyond, development and land acquisition have begun to pick up, as Historically, the market for, and value activity will still be constrained by the of, residential development land is strongly number of development players that part of the strengthening correlated to homebuilders’ expectations are well capitalised. The big question is whether demand for land can increase of residential markets in of future sales rates. Accordingly it is encouraging that sales rates of new to former levels when debt finance is not recent months… homes have begun to pick up, as part of widely available. And if demand for building the strengthening of residential markets in land does return, what type will it be? recent months. Cash-rich owner-occupier In such an environment developers land banks; the costs and complexities buyers, fundamental to improved turnover are likely to make a distinction between associated with brownfield development in the second hand market, have become low-risk development projects servicing an were beginning to be more fully understood equally important in the new homes market. identifiable housing requirement and those and acknowledged; and the capital- Their activity has been concentrated on where viability has been deeply undermined intensive, longer-term promotion and acquiring fully completed, fully discounted because of the holes that the downturn has preparation costs associated with this type schemes of a good design and high exposed in some development models. of land were beginning to take its toll on the specification. This is in stark contrast to the The two-tier market, which planted its roots development industry. off-plan, premium purchases made by buy- prior to the downturn, is set to become This has discouraged the large, up-front to-let investors at the height of the boom. more entrenched over this period. speculative payments that were a feature of Where the type of stock built for these Graph 3.1 Graph 3.2 Urban land was already discounted before the crunch Values reflect housebuilder expectations of sales Greenfield Greenfield land Urban Developer’s sales expectations 180 100% 160 80% 60% 100 140 Index (value growth q/q) Balance of opinion 40% Value growth y/y 120 50 20% 100 0% 0 80 -20% -50 60 -40% 40 -60% -100 01 02 02 03 03 04 04 05 05 06 06 07 07 08 08 09 79 81 84 86 89 91 94 96 99 01 04 06 09 19 19 19 19 19 19 19 19 19 20 20 20 20 4 2 4 2 4 2 4 2 4 2 4 2 4 2 4 2 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Source: Savills Research Source: Savills Research / Nationwide 10 savills
  11. 11. Savills Research | Residential Property Focus August 2009 Identifying opportunities Unlocking the potential in the land development market 1 Strategic Land Turning bulk ‘strategic’ land into fully serviced ‘enabled’ land, suitable for sale to a cash-flow driven housebuilder. 2 Understanding Planning and Policy A shift away from the old attritional S106 structures will create opportunities for the most skilled and experienced operators, pulling public sector funding into the land enabling process. 3 Equity Funding of Stalled Sites Alongside public sector funding, private equity funding could be used to unlock development as the market recovers by acquiring stock (in the markets best placed for rental buyers still remains on the market, it is Cash-rich owner-occupier and capital growth) and thereby often dependent on a different type of forward funding through off-plan, investor purchaser. buyers, fundamental to bulk acquisition. Symptomatic of the underlying turnover in the second hand demand for such a product in a mortgage constrained world is the fact that less well located, designed and diversified schemes market, have also become 4 Long Term Place Making Higher-cost sites in lower demand markets will take more are being bought in bulk at significant equally important in the new time to recover to viability within discounts based on income yields in homes market the conventional land trader excess of 8%. Correspondingly, with this development model, and longer part of the market dependent on vulture still for peak values to be restored. buyers, the effective eradication of any new The regional picture will vary around this, These sites will benefit most from build premium has been compounded, but some of the most significant variations a longer term place making and new build stock is trading at discounts will be at a local level. High value, popular, approach and only players with which varies anywhere between -25% to low supply locations will be in high demand long-term, equity funding will be -40% from peak. from risk averse developers and their successful here. n As a result of the freeing up of the funders. These are likely to see an earlier market for finished product, there are now and more marked recovery than locations signs of sporadic land trading activity with a large amount of supply, even if they but only where vendor and purchaser are in the south of England. n expectations are aligned around lower values. Reflective of the type of new build Jim Ward is Director of Savills Residential housing which is selling in greater volumes Research with 19 years experience. and at lower discounts, this land trading He specialises in market consultancy has tended to be of high quality, small (less projects for developers, investors, lenders than 50 units), often freehold sites in high and government organisations. These demand locations with deliverable planning projects tend to focus on market capacity permissions and phased payment terms. and potential on a local level. Equally the market value of such small sites and serviced plots is likely to recover more quickly than that for bulk land. savills 11
  12. 12. Savills Research | Residential Property Focus August 2009 Coastal property A national pastime From ultra prime destinations to faded seaside resorts, house prices are as varied as the coastline itself. But what does the future hold? Lucian Cook investigates. F rom faded Victorian seaside Council tax data suggests that in most of However, we expect the top tier of prime resorts to the developing coastal the popular local authorities second home locations to maintain an average house playgrounds of affluent second ownership rates are currently between 9% price premium of at least 40% in the future home owners and those who and 10%. However, figures at a ward level as they continue to attract equity in a have bought into a better quality of life, show second home levels are typically mortgage-constrained market place. These settlements along the coastline of England nearer 40% within the highly sought after locations cover a wider geographical area and Wales are as varied as the coastline locations, such as Salcombe and Rock, bringing in the rural Northumberland coast, itself. Over the past decade, the differing where wealthy buyers have snapped up the Gower Peninsula and parts of the Isle demands on the coastline, from where is the limited supply of housing, creating of Wight. fashionable and where is not, has led to an something of a snowball effect. extraordinary range in house price values. The extremely localised nature of these Traditional seaside On average house prices in the coastal ultra prime locations means Land Registry As we enter the first stages of recovery postcodes of England and Wales are within data fails to capture some of the smallest, the coastal locations which are most likely 5% of their county average. Yet prices most exclusive locations such as Helford to lead the process will be those with a within coastal cities, traditional seaside Village and Coverack. Nonetheless, the good balance in demand between those resorts and most notably other primarily list clearly demonstrates how ultra prime relocating to an area full time and second industrial, urban coastal centres carrying locations are currently heavily concentrated home buyers. As a result we would expect high levels of deprivation, all average less in Cornwall, parts of Devon (the South locations such as Brighton and Hove, than prices within the counties in which Hams), Dorset (Sandbanks) and parts of Chichester and Topsham to be among the they are located (see Graph 4.1). the north Norfolk and Suffolk coast. first to show signs of a recovery. In stark contrast, our research High city bonuses and ten years of The fate of house prices within the has identified 14 ‘ultra prime’ coastal significant wealth creation has propelled mainstream traditional seaside resorts is postcodes (see Table 5), where house 11 out of the 14 ultra prime locations into far more difficult to predict as prices within prices are almost twice the county average. this category during the past decade. The these locations vary considerably. The Their appeal to a pool of wealthy buyers likelihood of a new culture of reduced top 25% in terms of having the highest means that prices within these locations bonuses and the fallout from the recession prices relative to the county average, such increased by some 295% on average over are likely to mean that a repeat of the as Boscombe, Bournemouth, Bude and the past 10 years, even taking into account explosion of ultra prime locations is unlikely Whitstable currently show an average the downturn in market conditions. during the next 10 years. house price premium of 14%. In the bottom 25% of such locations, which includes Hastings, East Sussex, Clacton-on-Sea, Essex and Scarborough, North Yorkshire, Graph 4.1 average prices are 29% less than their Coastal house prices vs county average county average. While such locations have been the 120% Simple average target of regeneration schemes, such Index of multiple as the £45m Sea Change programme 100% deprivation vs administered by CABE, issues of physical coastal average 80% and social isolation will suppress house Mix adjusted prices as long as problems associated average 60% with low wages and low skilled seasonal employment are combined with an out- 40% migration of young people. 20% To revive housing markets in these areas new sources of equity need to be 0% attracted, but as English Heritage stated it in its 2007 document An Asset and -20% a Challenge: Heritage Regeneration in -40% Coastal Towns in England, “long term decline in some areas has created negative -60% images of many coastal towns which are Ultra Prime Rural Other Coastal Traditional Industrial prime coastal coastline coastal city seaside urban deeply entrenched and can be challenging coastal town resort coastline to reverse.” n Source: Land Reg / DCLG 12 savills
  13. 13. Savills Research | Residential Property Focus August 2009 Table 5 The UK’s top 14 ultra prime coastal locations by average house price Postcode Location Average % of county average 10-year price house price Unadjusted Adjusted growth BH13 7 Sandbanks 812,968 281% 332% 185% PL28 8 Padstow / St Merryn 548,977 240% 213% 493% TQ8 8 Salcombe 519,463 217% 242% 367% TR2 5 St Mawes 463,129 202% 194% 356% BH13 6 Branksome 459,159 159% 214% 202% TQ7 4 Bigbury on Sea 433,362 181% 197% 356% PL27 6 Rock / Polzeath 414,193 181% 161% 316% IP15 5 Aldeburgh 389,878 194% 192% 191% TQ6 9 Dartmouth 382,671 160% 177% 362% NR25 7 Cley Next The Sea 376,991 203% 200% 231% PL29 3 Port Isaac 360,015 157% 152% 262% IP18 6 Southwold 359,040 179% 203% 232% PL23 1 Fowey 351,894 154% 160% 258% NR23 1 Wells Next The Sea 316,945 171% 178% 313% Average 442,049 191% 201% 295% Source: Savills Research / Land Registry Case study on Cornwall P roperties closest to the coastline command higher values than those What is the impact on property value further away and the difference a sea view can make is significant. based on the proximity to the coast? Our research* shows that properties located within 100m of the coastline (and therefore most likely to benefit from sea views), carry an average Graph 4.2 premium of 61% over those properties located Cornwall: average percentage premium vs distance from coast more than a 1km from the coast. The premium Within 100m 100m - 250m 250m - 500m 500m - 1km often continues to be more than 50% for properties 100% between 100m and 250m of the coast, and although it tapers off beyond this distance there 90% remains an average premium of 31% within 1km 80% of the coast. 70% While there are significant variations around the average, depending on property type, location, 60% and privacy, the premiums are generally highest 50% for detached properties. In 2008 detached houses 40% sold within 100m of the Cornish coastline averaged £525,168 in value while those between 100m and 30% 250m from the coast averaged £460,585. This 20% reflected premiums of as much as 85% and 63% 10% respectively over comparable inland properties. n 0% *Based on analysis of just under 12,000 sales, Detached Semi-detached Terraced Flat which took place in Cornwall during 2008. Source: Land Registry / Savills savills 13
  14. 14. Savills Research | The Residential Property Focus August 2009 Summary After the dramatic impact of the credit crunch, the residential property market has been irrevocably altered. n The property market has been rates, an improvement in the accessibility n Cash-rich owner-occupier buyers have irrevocably changed by the credit crunch of mortgage finance and a recovery in not just focussed their attentions on but whatever shape it takes in the future economic growth, factors which will enable second hand property, but also identified the demand / supply imbalance makes a mortgage-dependent buyers to join the opportunities in the new homes market, recovery inevitable. Those best placed to equity-rich. concentrating on acquiring fully completed, take advantage of this recovery are those fully discounted schemes of a good design investors and developers who entered the n As predicted, prime central London has and high specification. This has boosted downturn with low debt levels, special skills so far led the recovery in UK house prices sales rates and in turn led to signs of and access to equity. These will become where values rose by 4.3% in the three sporadic land trading activity for high the new and successful players in the months to the end of June 2009. quality, small (less than 50 units), often residential property market of the future. This positive trend has begun to filter freehold sites in high demand locations through into the markets outside the with deliverable planning permissions and n We cannot rule out further price falls in Capital, where its influence is strongest, phased payment terms. the mainstream market this year. However, with small price rises seen in the commuter because affordability has dramatically strongholds of Surrey and Kent and some over-corrected, further falls will not be as of the established prime locations in the significant. We, therefore, stand by our south such as Bath and Winchester. forecasts that total falls from peak will not exceed 25% peak, but sustained house price growth will require low interest For further information please contact a member of Savills research team… Yolande Barnes Lucian Cook Jim Ward Jacqui Daly Director Director Director Director 020 7409 8899 020 7016 3837 020 7409 8841 020 7016 3779 Marcus Dixon Carrie Scrivener-Leask Neal Hudson Faisal Choudhry Associate Director Associate Director Associate Associate 020 7409 5930 020 7409 8744 020 7409 8865 0141 222 5880 Savills plc Savills is a leading global real estate service provider listed on the London Stock Exchange. The company established in 1855, has a rich heritage with unrivalled growth. It is a company that leads rather than follows, and now has over 200 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. While every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research. 14 savills
  15. 15. Research publications Savills Research is a team of property and research professionals dedicated to understanding global real estate markets. Our aim is to use our knowledge to help you to add value to your property interests. Spotlight on… Spotlight on… Scotland residential The future of Student housing review 2009 UK residential development land Spotlight on ‘Student Scotland has a Housing’ presents world-wide reputation Scarce debt-funding a view on the as a country of has changed the performance of the outstanding natural development land student housing beauty, and Savills is market, as emphasis sector in the current fortunate enough to moves from funding economic climate and be involved in the sales models based on the key fundamentals of many of Scotland’s short-term returns to which currently finest properties. those based on long- underpin the sector. term income-streams. Spotlight on… Spotlight on… Market in minutes Prime rental market International Prime residential farmland markets markets in London The withdrawal of 2009 and GB mortgage finance has been a significant With an industry that The recurring theme factor in house price is well placed to across the prime falls, but conversely weather the current residential markets resulted in more recession, we believe is that the market activity in the rental that farmland values has entered what is market; as renting on a global basis believed will prove to became preferential for will remain robust be a bumpy recovery. many house movers. during the current economic cycle. Sustainability Office occupier Shopping centre briefing 2009 survey 2009 and high street bulletin Q2 2009 What are the potential The recession has benefits of feed-in meant that occupier For retailers and tariffs for landlords focus has returned landlords, the ability and investors? to the property to generate capital fundamentals of cost, is a genuine point of quality and location. differentation from the competition. For our latest reports, visit
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