Predictions for the UK Property Market in 2011

There are a lot of opinions floating around on what the UK property market is doing in 2011. Most agree that the residential housing market is set to remain subdued for the rest of this year at least, with many believing that next year will be an equally tough year.

But of course, all these predictions are focussed on house prices, and how they will be depressed because first time buyers can't get mortgages and other factors. But the fact that first time buyers can't raise deposits is driving massive demand into the rental market, which is of course benefiting landlords and boosting UK property investment. This has culminated in the average UK rental rate growing to the three year high of £767 in July according to tenant referencing agency HomeLet.

So, as you can see, it is important to differentiate predictions on UK house prices, with predictions on the UK property market, here are some of the latter.

Residential

Martin Ellis, Chief Economist, Halifax PLC

"Overall, there has been little change in either the level of house sales or the number of properties on the market for sale since late 2010. These steady market conditions have helped to stabilise house prices in 2011 following last year's modest decline.

"This pattern is expected to continue over the rest of the year with little genuine direction in either house prices or sales. Sustained low interest rates and a slowly improving economy should help to support demand in the face of pressures from weak earnings growth, relatively high inflation and higher taxes."

Royal Institute of Chartered Surveyors Housing Market Survey 2011

The negative trend in pricing may extend into the early part of the year but neither the most reliable lead indicators in the RICS Housing Market Survey nor our proprietary models suggests that the downside is likely to be material. Indeed, on a reasonable set of economic assumptions it is quite conceivable that by the final quarter of 2011, national house prices (as measured through the index compiled by the Nationwide Building Society) will not be that very different from where they currently stand.

Interpretations

If house prices remain flat, it is logical that the rental market will continue to strengthen, and rents will continue to be driven up. This means that the residential market will continue to present good opportunities for property investment in the UK, with opportunities to get good deals from desperate sellers, and the wider economy recovering more quickly than housing.

Commercial

Commercial Property Confidence Monitor for Lloyds Bank Corporate Markets

According to the latest release of the Commercial Property Confidence Monitor for Lloyds Bank Corporate Markets optimism in the UK commercial property market is growing, but is still well below the levels seen at this time last year. That said, investor intentions among major UK property investment companies are the highest ever recorded by the survey, with 82% of large companies planning to increase their exposure to investment property in the UK this year. According to the survey the highest sentiment is in the markets of London and the South East.

Royal Institution of Chartered Surveyors UK Commercial Market Survey

According to the latest release of the RICS UK Commercial Market Survey for Q2 2011 the office sector is by far the best performing, and as many other reports confirm, London is dominant. The report pointed out that both occupier demand, and availability grew at around the same pace, with modest increases in both during the second quarter. It also said that rental value expectations remain negative at the all property level, although only moderately.

Interpretations

All in all property investment UK continues to be viewed as a good prospect with capital values severely depressed and some great bargains to be found. The biggest problem for those considering investing in UK property is funding, according to the same Lloyds Commercial Property Confidence Monitor report mentioned above said that only 46% of medium/large businesses and fund managers plan to use bank lending to fund acquisitions, and of small businesses only 27% planned to use bank lending. For large companies the figure rose to 65%. But for those with equity, or the ability to raise funds from alternative sources, there are opportunities ripe for the picking.

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