United Kingdom Residential Continued market stability Q2 2017

Transcription

1 United Kingdom Residential Continued market stability Q2 2017

2 2 3 Residential market and economic overview So far in 2017, the housing market has not been as strong than in previous years, with sales activity particularly muted. The good news is that first time buyers continue to be boosted by various Government initiatives and are at their highest level since Economic and political backdrop June s general election result provided another political shock for the UK. Following a period of uncertainty, the new deal between the Conservative party and the Democratic Unionist Party provides an element of stability. In terms of what impact this will have it is simply too early to tell. The majority of the official data is still pre-election. However, in terms of the housing market, our own analysis shows that, in the absence of direct policy intervention, elections generally have little or no impact on the market. UK GDP growth is estimated to have grown by 0.2% between Q and Q This is the second estimate of growth, published on 30th June 2017 and has been revised downwards by 0.1 percentage point from April s preliminary estimate. The main cause of the downward revision was the fall in consumer facing industries such as retail and accommodation and slowing household spending. This is partly due to rising prices with inflation continuing to breach the Bank of England s 2.0% target. Consumer Price Inflation was 2.9% in May 2017, up from 2.7% in April. The rate of inflation has been consistently increasing since April 2016 and is now at its highest level since April The predominant driver has been the weaker sterling rate since the Brexit referendum which has led to import inflation. Inflation is now outpacing wage growth, which was 2.1% in the year to April. This means that nearly two and a half years of real wage growth has come to an end. This squeeze on real incomes is likely to continue throughout this year and will bear down on consumer spending. However, the labour market in terms of number of people in work remains strong. Estimates from the Labour Force Survey show that, between November 2016 and January 2017, and February and April 2017, the number of people in work increased and the number of unemployed fell. The employment rate is currently 74.8%, the joint highest since comparable records began in The unemployment rate was 4.6%, down from 5.0% for a year earlier and the joint lowest since Oxford Economics forecasts for UK GDP growth (as of May 2017) for 2017 through to 2020 are 1.7%, 1.4%, 1.6% and 2.1% respectively. At its last meeting in June the Bank of England voted to maintain the base rate at 0.25%. However it was more hawkish in light of rising inflation, with three MPC members voting for a rise. Currently we have not changed our view of when an initial rate rise will happen, which remains early Residential market overview According to Nationwide, the rate of annual house price inflation slowed to 2.8% in Q2 2017, down from 4.1% in Q1. Average house prices are currently 209,971. Growth across nearly all regions declined with the exception of the North East and Wales which saw marginal increases. London and the outer South East recorded the sharpest deceleration, with annual growth rates falling by 3.8% and 2.9% respectively. Growth in London was 1.2% in Q2, down from 5.0% in Q1. In the outer South East annual growth fell from 6.4% to 3.5%. Data from the Bank of England shows that lending remains broadly stable relative to In the most recent three month period (March to May) mortgage approvals were down marginally by 3% compared with the same period of However, in terms of actual transactions, Land Registry records a more pronounced fall, with sales volumes in the first two months of the year down 15% compared with the same period of Activity in the housing market is largely being driven by first-time buyers. There are a number of government housing schemes helping to boost first-time buyer numbers and over the last year, the number of first-time buyers reached 345,000, the highest since the start of In contrast, home mover numbers have been subdued for some time now, and it is the first time since 1996 that first-time buyer numbers have exceeded movers. A low number of home movers means that fewer properties come up for sale (which perversely can push up prices). Since the stamp duty change for second properties last April, first-time buyer numbers are the only component of transactions that has grown consistently. Buy to Let properties have been particularly impacted and the number of sales have halved. The latest RICS survey (May 2017) reiterates the official data of slowing activity and growth. It points to a lacklustre set of overall conditions with enquires, instructions and sales all declining. Although our previous research shows that elections have little impact on the housing market, there would have been an element of uncertainty feeding into these results. The headline price growth indicator moved from +22% to +17%. This is the lowest reading since August 2016, but nonetheless is still consistent with modest gains. Respondents currently envisage house price growth across the UK averaging 3.5% per annum over the next five years. CBRE has recently updated its own forecasts which are detailed at the back of this report. Chart 1: Regional house prices and growth (Q2 2017) London Outer Metropolitan South East South West East Anglia UK West Midlands East Midlands North West Yorks and Humberside Wales Scotland Northern Ireland North East 478, % 362, % 274, % 237, % 220, % 209, % 180, % 173, % 155, % 151, % 148, % 143, % 133, % 125, % Source: Nationwide Building Society

3 4 5 How are key land markets performing; the view from CBRE agents London According to Nationwide, annual house price growth across London slowed to 1.2% in Q2, from 5.0% in Q1. The latest data from Land Registry also recorded a 40% drop in sales volumes in the first two months of 2017 compared with the same period of While this is a significant drop, it reflects a surge in sales in the first quarter of 2016, as buyers were trying to avoid the upcoming additional stamp duty. According to CBRE agents, little has changed in the London market from Q1. The high value market (over 2,000psf) continues to struggle, but this has been the case for the last year or so now. Overseas investors are still very much interested in the London market, but at a lower price point. The mid-market ( 1,000psf 2,000psf) is rather variable, with some schemes selling well, such as One Park Drive, whereas others have struggled. Generally, housebuilders are increasingly cautious of this price point and are unlikely to consider it for current development programmes. The main focus for the housebuilders remains the 600psf 800psf price bracket in locations close to transport links. This market remains highly competitive. Q2 has seen some large-scale land sales, mainly from overseas developers. The number of consented sites coming to the market was very limited. However the unconditional market has been robust, particularly for secondary industrial sites that have been re-allocated for housing. The majority of these are in outer London and are being bought by housebuilders, private rented sector developers and housing associations. However, so far in 2017 there have been very few land purchases by housebuilders in central London. Chinese developers have been active recently. They are mainly looking for opportunities offering scale (at least 300 units) and with the benefit of an existing planning consent.

4 6 7 South East South West Across the South East annual house price inflation was 3.4% in Q2 2017, down from 6.4% from Q1. According to the Land Registry transaction volumes in the first quarter of the year were down 30% compared with the same period of The view from CBRE is that the market is robust but growth is more localised to quality locations and schemes. It is also still heavily reliant on Help to Buy, particularly on new build developments where up to 50% of sales will utilise the scheme. Land prices are steadily increasing, but again this is more localised, site specific and highly dependent on location. Only a small amount of sites are selling off-market and buyers and sellers seem marginally more confident, but generally sentiment remains unchanged. There is generally strong interest in the region for consented family housing sites of units where GDV s are in the order of per sq ft. In these stronger locations, we are seeing 5-8 bidders per site from the major house builders. Bellway have been the most aggressive land buyer in this market for the past 12 months. We are also seeing a good appetite for strategic sites of between 1000 and 6000 units from both property companies, e.g. Urban & Civic and St Modwen, and a number of the Plc house builders, e.g. Taylor Wimpey. The outlook for the rest of 2017 for the South East land market remains reasonably buoyant. Two factors which will influence this land market in the medium term are the governments policy decisions on Help to Buy and Crossrail 2. In strong city centre locations such as Guildford, Maidenhead, Woking and Reading, demand continues for sites with lot sizes between units for both Build to Rent and for sale schemes. Two of the largest County Councils (Surrey and Hertfordshire) have recently launched competitions to accelerate the delivery of their land holdings for residential development. This has been of particular interest to contractors, Registered Providers, house builders and property companies. The Royal Borough of Windsor & Maidenhead have recently appointed Countryside as delivery partner to progress their portfolio of four sites in Maidenhead town centre to deliver a total of 1500 units for both the sale and investment markets. The South West recorded annual house price growth of 4.4% in Q2, down from 5.4% in Q1. The view is that house prices have peaked and will remain largely stable over the coming years. Sales volumes for the first two months of the year are down by 17% compared with the same period of Second-steppers probably account for the largest group of buyers with investors still actively buying in city centre apartment schemes. Help to Buy continues to be widely utilised in the region. There is strong appetite for volume apartment schemes, particularly in city centre locations which is driven by Build to Rent operators and developers. However, price inflation has impacted targeted returns to the downside. This is impacting viability and land values which struggle to compete against the for sale market. Suburban locations remain the stronghold of national housebuilders who are delivering housing led, lower density schemes. They are focussing on delivering smaller houses which can compete in price with city centre apartments. Land prices have largely stabilised in the region, driven by affordable housing requirements as councils are under pressure to deliver a higher volume. House builders have significant resource and have increased their targets. They continue to target and acquire land off-market. The planning process continues to impact housing delivery across the region. Similar to London, Chinese capital continues to target large regeneration and/or infrastructure driven schemes across the South West.

5 8 9 Midlands North In line with national trends, house price growth decelerated across the Midlands region. In the East Midlands annual growth in Q2 was 4.1%, down from 4.9% in Q1. The West Midlands recorded a slightly higher decline, from 4.5% to 3.6%. Overall, transaction volumes across the Midlands were down 24% in quarter one 2016, compared with Q The view from our agents is that new build continues to perform well with Help to Buy still actively used. It is estimated that the scheme accounts for approximately 50% of new build sales in region. Furthermore, it is not only utilised by first time buyers for entry level homes but extends to homeowners and prime city centre apartments. In the land market prices are still increasing, driven by continuing albeit slower price inflation. Again, this is largely underpinned by Help to Buy. There is a high volume of opportunities both on and off market and buyers and sellers remain confident. However, informed sellers are perhaps more cognisant that we are now approaching, or are already at, the peak of the current cycle. Housebuilders are continuing to enter or expand in the region. Crest has returned to the Midlands and Miller is due to open a West Midlands office. Redrow also acquired a smaller developer to expand into the East Midlands. Large developers, including Galliard and Berkeley are more active in the city centre apartment markets, as well as cash rich registered providers such as Clarion and L&Q. In addition, we are seeing smaller private developers expanding and new ones being established. Appetite for Build to Rent product is increasing, with demand spilling out from Birmingham into surrounding Midlands cities. However the conversion rate of Build to Rent deals has slowed, with the most recent deal agreed approximately six months ago. The first wave of investment has focussed on the Top five regional cities, with agreed Build to Rent deals now progressing through the build cycle. In many instances these first movers are now raising further capital for another investment round. New entrants continue to circle the city centre markets looking for both funded and standing investment opportunities. In the for sale market, Seven Capital continues to dominate the city centre market with most housebuilders (with the exception of Barratt) focussed in the suburbs. The North East was the only region in England to record an uptick in the pace of house inflation. Annual growth in Q2 was 1.1%, up from -0.4% in Q1. Growth in the other regions fell. In the North West annual price inflation was 4.1%, down from 5.0%. In Yorkshire & Humberside growth declined marginally from 2.5% in Q1 to 2.3% in Q2. Total sales were down 20% in the first quarter of 2017 compared with the same period of According to CBRE prices remain robust, particularly in the new build market. A prime apartment scheme in Manchester was recently released with anecdotal evidence indicating strong sales performance. Expectations are for the scheme to set a new psf benchmark for the city. Land is in demand and developers are increasing their delivery targets. However, it remains difficult to actually transact deals with an undercurrent of caution still prevailing in the market. There is an inability, or unwillingness, by purchasers to take a view on issues which often results in significant delays between Heads of Terms being agreed and exchange of contracts. That said, housebuilders are continuing to expand across the region. The key emerging trend is the drive towards more suburban private rented development. This has been led by SIGMA Capital (which recently launched its new REIT focussed on private rented houses outside of London) but there is increasing interest from other investors and developers such as Roseland and Black Pearl. In addition, large funds are also considering straying from their city centre mandates and diversifying into the suburbs. Increasing development in Manchester has led to concerns that the city could be oversupplied by the end of the decade. However, given the level of latent demand in the market and the current size and projected increase in the renter population, we believe these concerns are overplayed. In contrast, the Council is concerned about an undersupply issue by 2020 as a lack of development sites will impact future delivery. In some instances it appears that some funds are simply looking to diversify away from Manchester at the current time, but will re-invest in their second and/or third round capital raises.

6 10 11 Scotland According to Nationwide, annual house price growth across Scotland slowed to 1.7% in Q2, from 2.9% in Q1. However, according to the latest data from Land Registry, sales are down just 6.5% in Q This is much less than the national fall of 25%. The Central Belt, anchored by the two principal coburbations continues to perform strongly. Most sites that are brought to the market are attracting good levels of interest. The Plcs continue to be focused on land where consents are in place. The pressure on prices in Edinburgh in particular is having a knock on effect on suburban sites with the shortage of family accommodation continuing to be a significant factor. The Plc housebuilders, who tend to be a barometer of the Scottish Housing market, are all seeking to increase their annual completions in 2017/18 and therefore the number of outlets required. Miller Homes will be seeking to expand its Scottish operation up to 1000 units per annum. Allanwater Homes, a Bridge of Allan house builder, is continuing to grow its housebuilding operation and has purchased land for 102 houses at Heartlands. They will be building alongside Bellway Homes who have commenced a second phase of 135 houses and are enjoying strong early sales. Dandara, the Isle of Man housebuilder who has had a strong presence in Aberdeen since 2009 has now opened an Edinburgh office. It has secured its first planning consent in the area at North Berwick for 125 houses and expect to be on site in August It has secured control of sites at Straiton and Eskbank in Midlothian and purchased an office building for redevelopment at Pinkhill, Edinburgh which is progressing through planning. Bellway Homes is seeking to increase its operation in Scotland to 1000 homes, which may bring pressure on their single Scottish Region office in Hamilton to consider many of its peers. The Edinburgh market continues to be very competitive in the city centre with small sites fetching well over 2m per acre at closing dates. City centre development sites are regularly attracting over 10 offers from property developers which underlines the increase in small builder enthusiasm in the market. Scotland has been behind the other regions in getting Buy to Let spades in the ground. This can partly be attributed to the lower rental values, political uncertainty and specifically in Edinburgh, the lack of city centre sites (and the intense competition for those that are available). However, with Moda having secured prime sites in Glasgow and Edinburgh and local developers now seeking opportunities off the back of increasing institutional interest, improved political stability and the strong demographic argument, the market is beginning to move. Across Scotland rental growth in Q2 was recorded at 1.5% with the decline in Aberdeen leveling off, but underpinned by strong growth in Glasgow of 5% and Edinburgh of 5.2%. (Citylets)

7 12 13 Residential outlook Despite a period of uncertainty ahead, the market fundamentals remain sound. However, there will be some negative headwinds over the next year, including lower take home pay, which will keep price growth muted. CBRE expect house price growth of just under 4% this year, slowing to 1.5% next. Despite the recent political turmoil, CBRE remain optimistic about prospects for the residential market. CBRE expect UK house prices will grow by an average of 4% this year, with house price growth currently running at 5.6%, according to the Land Registry. There will be some variation across the country however, with southern areas performing better than northern areas. CBRE expect that outer London and the surrounding home counties growth will outperform and rise faster than central London. Although Prime Central London forecasts are more subdued than other areas, the upside risk may be the continued weak Sterling rate against other currencies. This could therefore translate into higher-thananticipated activity levels in the prime market as overseas investors take advantage of the currency play. CBRE expect 2018 will be the trough in this particular cycle, with overall growth of 1.5%. This reflects the impact of lower take home pay and economic growth. Sales activity has been significantly lower so far this year, and partly reflects a marked fall in Buy to Let buyers following last year s tax changes. In addition, there have been fewer home movers (the number of first-time buyers has exceed home movers for the first time in over a decade). Fewer home movers mean that fewer properties come up for sale; on average, nine in ten properties on the market at any time are existing properties, not new ones. The perverse result of this may be a worsening supply and demand imbalance, which will continue to underpin house price values and growth. It could also boost the demand for new build homes. Table 1: Forecast House Price Growth 2017 (%) 2018 (%) 2019 (%) 2020 (%) 2021 (%) Total (%) London Prime Central London South East South West East Anglia East Midlands West Midlands Wales North East North West Yorkshire and Humberside Scotland UK Note is cumulative growth 13.4% Source: CBRE Research Scotland 7.4% North East 14.5% 14.5% Yorkshire & Humberside North West 16.3% 17.2% East Midlands Mainstream house price growth % Wales West Midlands 20.7% East Anglia Our house price forecasts are based on the Land Registry house price index). 19.6% 21% 18% South West South East London

8 14 15 Research team Jennet Siebrits Head of Residential Research Senior Scott Cabot Residential Research Associate Land agency National South East North Jasper Masters Executive Chris Georganas Steven Verity Senior Greater London Kamil Chowdhury Senior Adam Cradick Senior Andrew Purdon Tom Moore Henry Chapman Associate Alex Fox Associate Kelly Cox Associate Nick Henton Associate Alex Shaw Surveyor South West Guy Mansfield Midlands Adrian Willet Senior Tony Haran Lorna Devane-Porter Associate Will Blacker Senior Surveyor +44 (0) Mike Gorman John Dunlop Alistair Chapman Bernadette McQuillan Rebecca Harper Associate Jessica Haigh Senior Surveyor Tom Sinclair Surveyor Scotland Stewart Taylor Senior Further information: Sources Disclaimer 2017 CBRE To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at The Nationwide, HMRC, DCLG, Land Registry CBRE Limited confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE CBRE Ltd.

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