The July RICS report on the UK economy and property market, following the Emergency Budget, makes interesting reading.
Economy
The impact of the wide ranging public sector cuts and the January 2011 increase in VAT on the construction and property sector are unknown as yet – although there are obvious concerns.
Whilst inflation is still above target, it is still falling and unemployment has started to decline in recent months, reaching 4.6% in May. Meanwhile, average earnings growth has picked up after a slight dip in April. Both manufacturing and service sector figures for May remained comfortably in expansionary territory.
Construction sector
Business confidence in the sector continues to recover although it remains negative overall. The biggest factors limiting building activity continues to be insufficient demand although reports of financial constraints appear to be easing (even though net lending to construction companies continues to fall). Latest data shows the value of construction output falling relative to a year ago while input costs continue to rise.
Housing
May house price data painted a mix picture with some indices showing slight falls and other minor increases but an average shows house prices are still about 8% higher than a year ago. The RICS Housing Market survey indicated that 19% more surveyors witnessed price increases than decreases.
From a regional perspective, London and the South East continued to outperform on the price trend followed by the North and North West which saw strong rebounds. Surveyors reported modest price falls in Wales, Yorkshire and Humberside and the West Midlands.
Housing market activity showed transaction levels fell by 11% in May according to HMRC. RICS data shows that supply continued to increase at a slightly faster pace than demand although the abolition of the Home Information Packs may have blurred the picture.
Mortgage rates on the whole fell slightly in May. And the number of mortgage loans in arrears and repossessions fell also.
Commercial property
Commercial property rents have almost stabilised in the office sector but are still falling in the retail and industrial sectors. This is partly due to a decline in voids – at the lowest level since November 2008.
Capital values continued to increase strongly in May but at a slower pace than recent months. All property capital values increases at a 15% annualised pace although this is almost half of the 28.3% pace recorded at the beginning of the year. The continued growth in prices combined with falling rents is reflected in the sustained drop in yields which currently stand at 6.57% at the All Property level (at their peak in June 2009, yields stood at 7.92%).
The value of commercial investment purchases increased from £5.6bn in Q1 to £6.5bn in Q2. But this is some way off the post-crisis peak of £9.7bn reached in Q4 2009. The largest purchasers of commercial property remain institutional investors – 36% of total purchases in Q2. Significantly, occupiers rapidly increased their share of purchases to 15% (up from 3% in Q1), while overseas investors rapidly decreased their share to 6% (from 28%).
I’d be interested to hear what those at the sharp end make of all these numbers...
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