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investment market - London
The investment market continued to experience a minimum level of
activity in the first half of 2009. Although borrowing costs fell as the
Bank of England reduced the Official Bank Rate from 2% to 0.5% by
March 2009, banks remained unwilling to lend in the sector to all
categories of investor including buy-to-let, investment clubs and
other private investors. Very few investment deals were completed
due to the insurmountable gap in price expectations between buyers
and sellers.
There are investors with equity pursuing products from distressed
sellers at deep discounts, but there was little evidence of sales at
deep discount in the first half of 2009. The unexpected revival of the
sales market brought relief to some developers, with new stock
selling well from March 2009 onwards. With vendors’ expectations
rising towards the end of the first half of 2009, buyers and sellers
were, if anything, further apart at the end of the period.
The movement of capital values and rents in the first half of 2009
inevitably reinforced the weakness of the residential investment
market. Rents, which ultimately underpin the sector, fell for 18
months to the end of June 2009, and the revival of prices in Midtown
and the City has inevitably had an impact on initial yields (Table 4 and
Figure 4). With capital values nudging upwards and rents continuing
to fall, gross initial yields dropped from 5.7% to 5.2% in the first half
of 2009: the lowest yield we have reported since we began this
Residential Review series in 1998. Investors will therefore find it
difficult to achieve an attractive return, unless they achieve a discount
when making a purchase.
Although investment activity was negligible, in April 2009 our
investment department sold a freehold building of six apartments
and a shop in Gray’s Inn Road, WC1, for Grainger plc, who acted as
adviser to the owners, an offshore company. With rental returns
falling and buy-to-let funding almost impossible to obtain, it is not
surprising that in the first half of 2009 the only other investment sale
that we transacted was in Wimbledon, where we acquired five flats
from a housebuilder at a discount.
Given overall market conditions, we had expected to see greater
evidence of forced sales of investment stock, but there have been
few examples to date. In June 2009, Wharfside, a scheme on
Prestons Road, E14, north of Canary Wharf was heavily marketed by
developer Galliard. Trinity Capital which forward-bought the scheme
and then sold it on to individual investors was reported to have
dropped its deposit after individual investors failed to complete.
Barclays Bank, which funded the development, subsequently
instructed the developer to market the flats for sale at discounts to
the original asking prices of 30%-50%. As a result in May 2009, onebedroom
flats were back on the market at prices from £165,000 and
two-bedroom apartments starting at £230,000, and the scheme was
sold out by mid-June
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Mortgage best buys and tools |
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| More from Your Mortgage |
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| When
it comes to household insurance, there are two kinds of
policy.
* Buildings insurance covers the structure of the home
itself, as well as the fixtures and fittings
* Contents insurance covers the contents you would take
if you moved.
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