So I read it is the end for character investment in the UK, I see the news headlines like yourself maybe and wait for a 10, 20, 40% drop in the value of the character market over the coming weeks. All the experts are saying that the UK economy is in crises, we may go into recession and interest rates should be slashed. I surprise are these the same experts that last year were claiming that the economy was overheating, inflation was a problem and we had a emotional rise in interest rates.
I don’t claim to be an economic expert, but I guess the final outcome will not be as bad as people think, rarely are things as good or as bad as the headline makers would have us believe.
But what of the current state of the UK character market? There remains a need for competitively priced family housing and affordable apartments below £90,000 in well designed developments. Above averaged price apartments nevertheless keep difficult to sell, developers are cutting their prices dramatically. However, this is probably less to do with the market and more in relation to design.
Some developers are having great difficulty in selling their similarities. nevertheless, well designed and competitively priced developments are being sold. What are becoming difficult to sell are poorly designed developments with poor layouts with over intensified layouts.
I have some sympathy with developers here as they have to squeeze the last drop out of high land values and are forced by planning policies to unprotected to high housing densities. Yes indeed, it seems UK developers are producing expensive slums for the future. Mainly these types of abodes are not being purchased by private individuals, but are taken over by housing associations.
It’s little surprise that these high density apartment developments are being rejected by character buyers. The final straw is the usually high maintenance fees, adding nearly 20% on top of the usual mortgage to buy such similarities.
As an different to apartments two bed similarities are more popular than apartments. Recently many planning approvals have been revised to mirror the changing need and planning re-submissions mid construction on some sites are not uncommon.
So we read the headlines that the character market is collapsing. consequently any sensible developer should logically then be withdrawing from the market? Maybe, to some degree, developers are looking deeper into their future projects; however, the number of development applications has not considerably reduced over the last few months and is generally the same as last year. The issue of a planning permission does not necessarily consequence in construction, but there are no signs of a major loss in confidence.
It could be reasonable to say that things are cooling and a measure of realism is entering the market, but this is not a bad thing given the huge character price increases over the last few years. The bottom line is there is a huge under provision of character; it’s just that this is not very affordable for large sections of the population.
So what are the longer term prospects for the UK housing market? Price Waterhouse Coopers research has run different scenarios, from an increasing market to a declining market. I believe the most likely outcome is for some short term character price reductions and then recovering over the next few years. consequently a huge collapse in the market may be doubtful, certainly not to a level below 1st quarter 2006 prices, but certainly, there is little possible capital uplift in UK character values for the foreseeable future. First time buyers income needs to catch up and at current rates of wage inflation this could take up to 10 years for UK character to be as affordable in terms of price to income ratio as it was in 1997.
So already though the UK market is doubtful to collapse it hardly offers a sparkling investment opportunity, but a perfect time for those wanting to buy a family home. In any market there are opportunities and good developers will continue to do well. Poor character developers or renovators of existing character will not be saved by a rising market if they get their development wrong.
So what are the alternatives for character investors? Places to look are the growing economies, Brazil, Peru, China, Russia and other areas of Eastern Europe. These countries are undergoing natural redevelopment and are experiencing investment on the back of their growing economies.
Russia is expanding quickly and good similarities have risen by ten times in value over the last four years. Salaries are rising strongly and the price growth looks set to continue.
What was the country with the strongest growth in character prices last year? Bulgarian character prices have increased by 30% this year since joining the European Union in January 2007. Investment from foreigners attracted by low prices and Bulgarian workers oversea sending home high salaries from western economies are forcing up the value of similarities.
This market has changed slightly over recent years, from mainly UK buyers looking for cheap similarities to serious high value investors looking for quality similarities in good areas. The character price upward trend in these countries looks set to continue.