A sea change from across the Atlantic?

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North America is leading the way once again, with the exceptional communicator and statesman Barack Obama safely installed in the hot seat for a second term.

Having led (i.e. caused!) the credit crunch, the US is making the most of its relative safe haven advantage and utilising the depth and diversity of its funding markets to great effect. This in turn has provided good real estate investors with more funding options through corporate bond issuances, plus loans from insurance companies as well as banks. DTZ boldly stated last autumn that, as a result, there was no funding gap in the US. In consequence, acquisitive US Private Equity funds such as Blackstone have begun mopping up bargains all over the world. Over the last year, domestic unemployment has decreased from 8.3% in January to 7.7%, homebuilder sentiment has risen to its highest level since 2006, and prices are up by about 17%.

Just as significantly, DTZ also said they expected the UK’s real estate funding gap to be all but eliminated by 2014, with equivalent funding lines to those active in the US recently tested and expected to expand significantly in the months ahead.

In the Eurozone, meanwhile, DTZ expect the funding gap to remain outstanding for some years. Even so, it looks promising that the crisis is taking a course “less bad” than most had expected  -much to the credit of (ex-Goldman Sachs) Mario Draghi, President of the European Central Bank and FT Person of the Year 2012. Draghi’s promise to “do whatever it takes” seems to be working.

As a result, the recovery of Greek Bonds has proven to be the hedge fund play of 2012. And if the Spanish government finally requested a Euro bailout, the country’s banks only required half the expected £100bn. The great exception of course is France, where policy makers seem to be doing their utmost to dismantle the economy (to the benefit of London). Economic disaster looks increasingly likely as wealth creators jump ship before they are pushed or even have their ships confiscated (as with Arcelor Mittal)!

Returning to the outlook for the UK, Mike Carney (notably also ex-Goldman Sachs) has been recruited as the new Governor of the Bank of England. He is widely considered to be one of the top two central bankers in the world, which is quite a coup for George Osbourne. Carney is generally expected to promote higher growth and employment, with interest rates staying lower for longer at the price of higher inflation.

This should be good news for investors like Inspired who concentrate on “real assets”, as values and incomes increase while debt as a proportion of value diminishes.

It is likely to encourage greater risk taking by investors who need to find higher returns in order to protect their capital, which will be at greater risk of erosion from inflation – currently standing at 2.7% and remaining stubbornly above the 2% target. Again, this represents good news for opportunistic investors like us: competition for assets may make it harder to buy cheaply, but there should still be plenty to go around as the US funds that bought loans in 2012 take action and make their margin by offloading in 2013. Additionally, our existing assets are all located in Inner London and should benefit from an increase in value, while capital should become easier and cheaper to raise.

I firmly believe that more risk taking (within reason) is a good thing generally: fear has a corrosive rippling effect through morale and into trust, investment and employment and has in itself become the greatest threat to our future wellbeing and prosperity. A more confident approach, as we’re beginning to see in the US, may just offer the perfect antidote.

Smiles all around

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Star JP Morgan real estate analyst Harm Meijer and his team recently published their 2013 forecasts – and they made for very encouraging reading.

The key message underlined the strong capital flows into markets and the belief that we are entering bubble territory for prime real estate in core Western European countries, which will prompt investors to move up the risk curve and invest in secondary assets.
Experienced management teams will be able to raise capital cheaply. To illustrate the point, almost 90% of listed property management teams (as surveyed by JP Morgan) expect capital raisings in the sector over the coming months.

The report also specifically highlighted London in stating:

“The ‘London is booming theme’ will carry on next year and we expect John Burns, CEO of Derwent London, to say at our conference in January again: ‘I can’t say it is bad, when it is good’.”

Shaftesbury too recently affirmed that London is more vibrant than ever.

“And we agree with that. The interest rate for London itself is too low. Valuations will rise further, but we believe there will be more talk about property values, after those have further surprised on the upside, and the coming residential boom in 2013.”

That sounds good to me and we share the sentiment.

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Inspired is delighted to have acquired 19 sites during 2012. These will ultimately produce some 84 units of mostly residential accommodation in Inner London (typically Zone 2) locations and will be worth a total in excess of £20m on completion, with margins on cost typically exceeding 50% and in some cases even 100%+.

Such impressive returns are the result of a bold contrarian approach in a nervous market, not to mention an awful lot of very hard work. We couldn’t have achieved it all without the help of the people we have had the privilege of working with over the past year including friends, family, investors, lenders, professional advisers, and our Inspired team.

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Our objective has always been to establish an efficient business in which we and all our stakeholders would benefit. 2012 was the year we could truly say we succeeded in that aim.

I have absolutely no doubt that we will do even better this year and look forward to working both harder and smarter to achieve the best possible results. After all, it’s not really work when you’re having so much fun, is it?!

Halifax House Prices up 1.1% in July

UK House prices
JULY 2009 (seasonally adjusted)
Annual change -12.1%
Monthly change 1.1%
Average Price £159,623

Commenting, Martin Ellis, housing economist, said:
“There was a 1.1% increase in the average UK house price in July. This was the second rise in the past three months and prices in the three months to July were 0.8% higher than in the previous three months. So far this year, house prices have fallen by less than 1%. Demand for homes has risen, albeit from a very low base, since the start of the year, driven by improvements in affordability and low interest rates. Higher demand has combined with the low levels of property available for sale to boost sales activity from exceptionally low levels and support prices over the past few months.”

Key facts
 • House prices increased by 1.1% in July. This was the second increase in the last three months and the third in the first seven months of 2009.
 • Prices in the three months to July compared to the previous three months – an indicator of the underlying trend – were 0.8% higher. This slight increase was the first rise on this quarterly basis since October 2007.
• Prices fell by 0.8% over the first seven months of 2009. The average house price in July was £159,623 compared to £160,861 in December 2008.
• House prices in July were 12.1% lower on an annual basis. The annual rate of change (measured by the average for the latest three months against the same period a year earlier) improved for the third consecutive month and has eased from -17.7% in April.
• The house price to earnings ratio – a key affordability measure – has declined from a peak of 5.84 in July 2007 to an estimated 4.36 in July 2009. The long-term average is 4.0.
• Further signs of an improvement in housing market activity, but less than half the level in mid 2007. Bank of England industry-wide figures show that the number of mortgages approved to finance house purchase – a leading indicator of completed house sales – increased by 22% between the first and second quarters of 2009, on a seasonally adjusted basis. Approvals increased for the fifth successive month in June and were 35% higher than in June 2008, but were nonetheless 58% lower than in June 2007.
• Lower interest rates have reduced mortgage payments. Monthly repayments accounted for an estimated 21.4% of average gross household income in July 2009 for existing mortgage borrowers. This compares with a peak of 26.9% in October 2008 and is the lowest proportion of income devoted to mortgage repayments since mid 2004. The longterm average for income accounted for by mortgage repayments is 20.4%. (Martin Ellis, Halifax)

House market upturn gains traction on price rise

House prices rose for the third month in a row during July and are now higher than they were at the start of the year, the Nationwide Building Society said today.

The average value of a UK home rose by 1.3 per cent during the month to £158,871.

Since the start of the year, prices are also up 1.3 per cent and could be higher still by the end of the year.

“Only a few months ago such an outcome would have appeared unthinkable,” said Martin Gahbauer, Nationwide’s chief economist.

Average prices are now 6.2 per cent lower than a year ago, which is a significant improvement on the 9.3 per cent year-on-year decline registered just one month before.

The data follows Bank of England figures published yesterday that showed the number of mortgages approved for home use purchase rose for the fifth month in a row during June to the highest level for more than a year.

According to Nationwide’s figures, February represented the lowest point of the market with prices registering a 17.6 per cent annual decline.

The building society said house prices had been “remarkably resilient” so far this year despite recession and rising unemployment. This could be because the sharp fall in transactions last year produced a pool of buyers who were ready to buy but did not want to do so at the height of the banking crisis, Mr Gahbauer added.

“When it became clear that Government interventions around the globe had stabilised the banking system and prevented a worst-case economic outcome, some of this pent-up demand re-entered the market, with the added assistance of very low interest rates,” he said.

But the building society also warned that the current run for the property market — with prices up in four of the last five months — may not be sustained.

This is because at current rates, prices would become out of kilter with average earnings, while rising unemployment would force more households to sell up.

“It is unlikely, therefore, that price increases can be sustained for long at the very strong rate observed over the last few months.” he said.

Nationwide also warned of a long-term shortage in housing supply because of the deep recession in the building industry.

It expects only about 100,000 homes to be built in 2009 — the lowest level on record — as building work slides well below the annual increase in the number of UK households.

“As it is likely to take time for the economy and housing construction to recover to pre-crisis levels, the potential exists for a considerable housing shortfall to develop over the next few years,” Mr Gahbauer said. (Times Online) http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6732904.ece

House prices rise by 1.2%, says Nationwide

From what I’ve seen on the ground with London estate agents and auctions the market is clearly strengthening.  http://business.timesonline.co.uk/tol/business/economics/article6385499.ece