Richard Pickering, Head of UK Research & Insight gives a personal view of the business and role of property in ‘New Europe’ , his weekly email update.
Down and out Finally, the UK has some clarity on the timing and form of our exit from the EU. Assuming that timeframes are not extended, the UK will return to being a fully sovereign nation by the end of Q1 2019; one year prior to the likely date of the next General Election. At last weekend’s Tory party conference, Theresa May announced the prospect of a ‘Great Repeal Bill’ to unpick EU law, setting a vision for ‘a country that is no longer part of a political union with supranational institutions that can override national parliaments and courts’. As we now seemingly veer towards a ‘hard Brexit’, at least the markets have some clarity about the shape of our future. The pound slumped to a 31-year low, 1.8% down on the previous Friday, whereas simultaneously the FTSE 100 almost reached its highest level ever at 7117. Confused?
Housing help Communities Secretary Sajid Javid has promised to tackle the housing crisis, citing it as being his ‘moral duty’ to do so. In an attempt to build a million homes by 2020, Javid has developed a two-pronged attack that he hopes will succeed where others have failed. The first limb is a £3bn ‘Home Building Fund’, which will provide loans to facilitate 25,000 homes by 2020. That’s 2.5% of the way there. The second is the ‘Accelerated Construction Scheme’ designed to unlock development on public land. Javid has been critical of the housebuilding industry, stating that “the big developers must release their stranglehold on supply”. It is difficult to ignore that land supply is the solution to the housing crisis, but we must wait to see what further measures will be announced to achieve this.
Lending survey A Cushman & Wakefield survey of lenders reveals that the overwhelming majority continue to lend in the UK. Only 5% have shut their UK books; however, appetite for lending on speculative development is noticeably down. Interestingly, appetite from lenders for pre-let development stock was greater than for non-prime investment stock in second tier cities, casting a spotlight on a growing differential between prime and secondary. Overall, however, lenders have reported minimal impact of Brexit on their business.
Life returns to normal Standard Life Investments has stated an intention to reopen its £2.5bn UK Real Estate and Feeder funds on 17 October, becoming the fifth fund manager to do so. In a letter to investors, Director Lynn Scott acknowledged that the economic data has not been as negative as expected, but that “the steady secure income component generated by property is likely to be the key driver of returns going forward over the near term”. Our own forecasts show that capital returns in most UK sectors will be under pressure over the next year, with income propping up total returns.
Richard Pickering, Head of UK Research & Insight.