SPECIAL FEATURE: The year of the property developer
This optimism is also extending to property developers. A range of signs are coming together to hint at 2014 being a big year for investing in bricks and mortar.
House prices on the rise, and growing further
After nearly five years of stagnating prices across the country, 2013 was the year that the British property market got going again. According to Halifax, prices shot up by 7.7% in the UK – with London properties rising by as much as 10%.
Generally, investment experts anticipate that 2013’s rising prices will continue into this year and beyond – the Office for Budget Responsibility predicts that property prices will rise by as much as 27% by 2018. Increased confidence in the property market mean that more people will be investing in bricks and mortar again, whilst the Help To Buy scheme will ensure that properties under 300k will remain popular.
It’s fair to say that rising prices will make it slightly harder for developers to spot a real bargain, particularly in already-buoyant areas, but developers worth their salt will be able to identify potential growth opportunities.
More areas to invest in
The Help To Buy Scheme does have its critics, who claim that the one-size-fits-all incentive will increase demand in already-popular areas while not doing enough in places where properties are struggling to sell and the market is stagnating. For that reason, developers and investors would be advised to put their money into areas that are showing signs of growth rather than putting money in deprived areas that may not be quite so resilient.
London remains a dependable place to develop money in property, particularly as it was less affected by the housing crash than other parts of the country and would prove to be more resilient in the unlikely event of a downturn. But well-connected period properties in provincial areas such as the Cotswolds, North Yorkshire and Wiltshire look set to rise again in popularity as house buyers aim to get more for their money, while commutable areas from London are also going to increase in value alongside new developments and transport links.
‘Superhomes’ stagnating thanks to Capital Gains Tax
When George Osborne announced in his Autumn Statement that foreign investors will have to join domestic developers in paying Capital Gains Tax on property, some suggested that the property market will be adversely affected. However, experts are anticipating that this won’t be the case.
It’s true that some foreign investors will pull away from London housing – deciding to put their money elsewhere – but any price stagnation will mostly be found in so-called ‘super-homes’ and won’t affect much of the market depended on by the majority of developers.
Borrowing at an all-time low
Rising prices and burgeoning demand means that now is a particularly good time for developers to invest in property. And with interest rates linked to unemployment and set by the Bank of England at an all-time low of 0.5% until mid-2015, commercial lending offers excellent value for money until mid-2015 at the very least.
Investors would do well to make the most of currently-low rates and protect against rises by investing larger deposits or choosing fixed-rate mortgages before the Bank of England raises the base rate.
Lenders waking up from their slumber
Alongside growing consumer confidence, the Government’s Funding For Lending scheme, which encourages financial institutions to lend to individuals and businesses, has resulted in the burgeoning enthusiasm of mortgage providers. Indeed, in December 2013, over 71, 000 mortgages were taken out – the highest monthly figure since January 2008.
Thanks to the wide range of previously-averse lenders coming out of the woodwork, and the variety of deals coming onto the market, experienced commercial mortgage brokers are finding that rates are becoming increasingly good value for money.
Lack of supply hints at potential for development
In the last 30 years, house prices have risen exponentially (from an average of £29,307 in Q1 of 1984 to £170,918 in Q3 2013, according to Nationwide). The reasons for these price rises are many, but a lack of supply in the market appears to be the primary reason.
Policy Exchange, a think tank headed by David Cameron’s planning and housing adviser, aware that house prices in some areas are becoming unaffordable, has recommended incentivising house builders in order to create 1.5m new homes by 2020. The think tank recommended that the planning system should be reformed and that British property taxes, currently some of the most expensive in the developed world, ought to be reduced.
In the light of this, developers who can tap into the thirst for property – whether that’s social, private or commercial – could well look forward to more opportunities to create and sell bricks and mortar in the UK in the next year or two.