Market Comment by Paul Gillespie

Date: 25th October 2011

With all of the “doom and gloom” that seems to endlessly bombard us from our TVs, radios, websites and newspapers on a daily basis, you could be forgiven for thinking that the property market was in a dire state and likely to be in a period of lengthy hibernation.

Whilst the economic picture is highly challenging with the Eurozone crisis, minimal economic growth in the UK, rising unemployment, higher taxes and public sector cuts (say it all quickly and it still doesn’t really sound any better!) the fact is that the impact on the property market has been very different from location to location.

The UK’s leading property portal website Rightmove have recently commented that wider access to mortgages and a rise in asking prices were early signs of a market recovery but that their figures show a widening gap between the North and South of the country with house prices in the South now being around double those of the North.

Compared to the beginning of the credit crunch four years ago, prices of properties coming to market have risen by 5.4% in the South but fallen by 9.6% in the North.

Price decreases usually result when negative sentiment, influenced by uncertainty around employment and tightening of finances, rises. Of the seven UK regions with the highest unemployment levels six are in the North, so employment concerns, especially in the public sector, will be exerting downwards pressure on prices and activity in many Northern areas. 

This is being exacerbated by lenders favouring buyers with higher deposits, where the less affluent north also fares poorly.

In the areas covered by Gibbs Gillespie we are, as I have commented upon several times this year, not “ring fenced” from the wider economy but we are “protected” from the worse aspects through our excellent communication links, wide range of employment opportunities and lack of dependence upon any one employer or sector and superb education facilities.

Whilst house prices make it difficult for the young to “get on the property ladder” there remains large amounts of equity within property and many parents are using this to help their sons and daughters buy for the first time.

Residential property, even allowing for the ups and downs of the market, has consistently outperformed every other form of investment over the past 5, 10, 15, 20 or even 50 years. It therefore remains a surprise that those who run our pension funds and investment funds have consistently chosen not to invest in this sector. 

Over the last fifty years, real house prices have risen by 271% compared to a 54% fall in real commercial property value for example. 

This represents a long run residential value increase of inflation plus 3.3% per year compared to inflation minus 1.2% per year for commercial property. 

These figures come from the IPD (Investment Property Databank) indices. 

The private rental sector remains very strong with demand continuing to outstrip supply and with rental values continuing to rise. 

There is however some evidence of tenants finding it harder to meet commitments which is why it is vital for landlords that a vigilant approach is taken to referencing and credit checking tenants at the outset and to the ongoing management of their investment. At Gibbs Gillespie our dedicated property management and tenancy renewal department ensure that risks are minimised and that our landlord’s interests are maximised at all times. 

Overall, talk of the death of the property market is clearly premature. Sale volumes are down across the UK and sensible pricing is key to attracting interest. The long term prognosis is however strong and, in the future, we may look back and see that now was actually a very good time to buy. 

Paul Gillespie MNAEA MARLA
Founding Partner

For further media information contact Jo Ryan on 020 8869 9863.