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Having cake and eating it

ne_010916Richard Pickering, Head of UK Research & Insight gives a personal view of the business and role of property in ‘New Europe’ , his weekly email update.

Owen’s odds  Labour leadership hopeful Owen Smith has pledged to block the UK’s EU exit, leaving many wondering how he would achieve this. Smith currently has odds of 5-1 of beating Jeremy Corybn (1-8) to become party leader. Assuming he beats these, the odds of Labour gaining a majority in the next General Election are 4-1 against the Conservatives (evens). The cumulative implied probability of Smith leading a Labour government after the next election is therefore 3%. Although the probability of there being a General Election next year is rising (now 31%), the likelihood is that Theresa May will commit us to Article 50 without a Parliamentary vote early in 2017 – which presumably implies that Brexit means Brexit.

Industrial improvements  In a boost to UK manufacturing, CBI’s Industrial Trends Report suggests that the weak position of sterling has had a positive impact on UK exports. The 505 companies surveyed reported a two-year high in their order books, with chemicals manufacturers performing particularly well. 17% of companies were expecting to raise prices next quarter and 30% expect a rise in output growth.

Pensions and property  Defying conventional doctrine, BoE Chief Economist Andy Haldane stated in an interview with the Sunday Times that the best way to save for retirement was to buy a property, rather than invest in a pension. Investment in a single property has liquidity risks, physical risks, and lacks any form of diversification. However, one only needs to look at London’s SW postcode to see the logic behind Haldane’s comments. Land Registry house prices have risen at an average 10% pa in this postcode over 20 years, which when geared at 80% sees a return of almost 20% pa, ignoring any income component. With seemingly no end to the supply drought, and UK 20-year bonds struggling to yield more than 1%, where will you put your money?

C&W sentiment survey  The impact of Brexit on commercial property pricing remains relatively opaque. Our pricing tracker reveals an average reduction in value of c.2% compared with the pre-referendum offer price. However, our recent investor survey, which addresses matters such as selling intention, investor sentiment, and long term value projections, revealed that almost half of investors believe that pricing has fallen between 5-10% since the vote. The weighted average reduction was 6%. Watch out for the full release.

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Richard Pickering, Head of UK Research & Insight

Richard Pickering, Head of UK Research & Insight.

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