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August 30, 2019updated 27 Aug 2019 2:47pm

Understanding the long-term resilience of residential property

By Jerald Solis

Don’t let Brexit get in the way of UK residential property investments, says Jerald Solis. Instead, look at the underlying data for a long-term outlook.

It was just over 10 years ago that the global financial crisis shook the foundations of emerging and established economies around the world. The effects were particularly prominent in the UK. However, the recovery of sectors such as housing was equally impressive – house prices were able to bounce back to their pre-crisis levels by the first half of 2014.

Now, the UK finds itself facing its biggest political challenge of the twenty-first century – Brexit. There is plenty of speculation on how Brexit (be it a deal or no deal) will impact the real estate market. Importantly, while many sectors have suffered from the lack of direction and leadership from the UK Parliament during this trying period, the UK property market has proven resilient. Indeed, if we take a step back and look at the performance of bricks and mortar, its growth in value is impressive, particularly in commuter towns like Luton and cities in the North of England.

Having been involved in the property market for many years, one golden rule to understanding residential investment is taking a long-term approach, and reviewing the performance of bricks and mortar across years, not months. In this respect, it is helpful to consider the evolution of the property market in the years following the global financial crisis to see what this assessment could mean for the future.

How has the market performed?

Over a decade on from the volatile global financial crisis, research indicates that the housing market has undergone a full recovery. According to the building society Nationwide, the average price of a British property has risen by 18% since 2007.

What does this mean in actual prices? Well, ten years ago the average UK house price was £186,000 and according to the latest release from the Office for National Statistics (ONS) House Price Index, this figure currently stands at £223,000.

While there has been significant political fallout in the intervening decade, not least in the form of Brexit, demand for bricks and mortar has remained remarkably strong. Indeed, the fact that the UK’s eventual withdrawal from the European Union has done little to diminish housing’s appeal is good news for homeowners and property investors alike.

Take London as an example. While the primary driver of growth in the capital has been the strong performance of London’s super prime property market, the value of property throughout the rest of the city has also risen. Hackney for instance, recorded the highest house price rise in the UK in the two decades leading up to 2018, with prices soaring by a massive 568%. For reference, the corresponding figure for Kensington & Chelsea is 438%.

However, this is not to say that the recovery of UK property has been confined to one region. According to the ONS index, property prices in the East Midlands, North West and South West have also risen considerably with the East Midlands exhibiting an annual 7.1% increase since the 2008-9 financial crisis.

The fact that property outside of London and the South-East is performing so well reaffirms just how structurally sound the UK housing market is, as well as the demand for accommodation in cities undergoing significant regeneration, such as Liverpool, Manchester and Birmingham.

Low supply is holding the market back

Demand for property has been leading to rising house prices, though the nationwide shortage of affordable housing has meant that buyers are struggling to progress up the property ladder. This has created a housing crisis – something which requires urgent attention.

In an effort to mitigate against the crisis, developers and public sector bodies are hastily commissioning new-build housing projects all over the country in a bid to ensure a transition from the rental market to homeownership. Without a doubt, building more homes is a vital constituent of any solution but this is not just a case of building new residential complexes quickly. Instead, developers need to be constructing residential properties that reflect the demands of a community.

At Experience Invest, we work closely with local community groups and public sector organisations to determine how our new-build developments can best reflect their needs.

By adopting this collaborative ethos, developers can overcome many people’s oft-stated objections to new builds. Our projects in Luton, Liverpool and Newcastle show just how new-builds can be constructed that are modern and reflective of the local communities in which they are based.

What can we expect in the coming months?

While the outlook is far from clear, a swift and tidy resolution to Brexit would help bring a much-needed dose of stability to the financial markets. This would, in turn, provide the confidence homeowners and investors need to start driving a greater number of transactions.

Away from Brexit, the government could also drive up activity with few carefully considered changes to the tax and regulatory regime which governs the UK property market. In particular, stamp duty reform and scrapping the mortgage market review would go a long way towards making life easier for first time buyers.

Nonetheless, the crux of the matter is simple. House prices look projected to rise as a result of ongoing demand, and this means potential capital growth for homeowners and landlords. To meet demand, developers will play an important role in increasing supply in places where it is needed most, such as commuter towns and cities in the north of England. Doing so will ensure residential properties remain an attractive asset for investors, while at the same time allowing prospective homeowners to enjoy the benefits that come with owning real estate.

Jerald Solis is the business development and acquisitions director at Experience Invest.

 

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