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New Builds To Drive Demand in UK Property Market

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United Kingdom  Bank of England  bank lending  London  Council of Mortgage Lenders  Michael Coogan  Institute for Public Policy and Research  potential real estate investors  Nick Pearce  IPPR  CML 

New Builds To Drive Demand in UK Property Market

By - Monday 20 June 2011

Not too long ago, the Institute for Public Policy and Research (IPPR) released a report estimating that the UK is facing a "growing housing crisis". The organisation estimated that by 2025 there will be a shortfall of 750,000 homes in the country.

Problem areas, according to the report, will emerge in London, the south-east of England, the east and Yorkshire and Humberside, with the rather grim conclusion that only the north-west will be able to meet demand.

The country needs to build more homes even if the economy continues to falter and the government needs to help stimulate this growth, the IPPR explained.

It's a view which has been growing in popularity of late, and one which is sure to be of interest to potential real estate investors looking for the next "big thing".

"We cannot go on as we have done. Britain needs to build more homes. That is not going to happen without a fundamental review of housing policy," said IPPR director Nick Pearce.

"If the rate of housebuilding does not radically increase, we face a growing housing crisis. Whether the economy performs well or poorly, a serious gap looms between housing supply and demand.

"Our ageing population and rising expectations for living standards are going to drive up demand, but if there is no change in housing policy it will seriously hold back supply."

Mortgage Lending Subdued

The Council of Mortgage Lenders (CML) has predicted that lending will remain subdued for the remainder of this year, with economic conditions still uncertain and banks still cautious surrounding lending.

CML explained that in April there were 40,900 loans, worth GBP 5.9 billion, advanced for house purchase, down from 41,900, worth GBP 6 billion, a year previously.

"The economic outlook, coupled with Bank of England subdued approvals data for April, suggests a muted summer for mortgage completions so we do not expect further increases in lending over the coming months," Michael Coogan, CML director, said.

It means that investors purchasing new build homes have an opportunity to capitalise on the growing rental market in the UK. In recent years, new builds in inner city areas have been driven by demand from young tenants - often helping to revive many markets, as well as widening consumer choice.

Investing in New Builds

At the height of the property boom, new build properties were big money business. Investors and homeowners alike were rushing to buy properties that developers were erecting across the country at an unprecedented speed.

A few years on and the market has changed significantly, bank lending is harder to come by and developers are not so eager to take on every project that comes their way.

In spite of this, there are still opportunities to be had. Many well-located, high-spec new builds on the market at present come with genuine discounts off realistic valuations. This, combined with their build guarantees, make them very appealing to both buyers and prospective tenants.

Indeed, a recent report from Savills revealed that GBP 0.4 billion is being invested in London's prime newly-built stock every year by international investors, with the total spend on resale property hitting GBP 3.3 billion annually.

All in all, there are definitely new-build bargains to be had. As always, rigorous due diligence is essential. Rental figures also need to be very realistic, taking into account the size of the rental market as well as the number of comparable properties available in the local area.

If these figures still leave a healthy cash-flow after expenses, the property could well be a unique opportunity to capitalise on the current market conditions and yield some excellent returns.

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*This page is provided for information purposes only and should not be construed as offering advice. IPIN is not licensed to give financial advice and all information provided by IPIN regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.

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