It could be four or more years before the property sector returns to pre-crash levels of profitability, according to the latest insight survey by accountancy and investment management group Smith & Williamson.
The findings will resonate with property professionals regionally as there are few signs of imminent recovery, borne out by two recent economic bellweathers.
According to the IPD, an independent body which provides performance and risk analysis for real estate, commercial values dipped by 0.8% in the third quarter of 2012, while the Nationwide House Price Index indicated that prices slipped by 0.9% in the same period compared to the previous year.
Hundreds of residential and commercial property executives were interviewed to gauge their thoughts for Smith & Williamson’s newly-released 10th annual property survey in the UK.
The majority of respondents cited continual headwinds caused by a double whammy of lacklustre UK economic performance and hard-to-access debt finance in the wake of the longest recession of its kind in living memory.
However, it was not all negative: the majority of respondents in Smith & Williamson’s survey say the regions they are most optimistic about over the next 12 months are the South East, including Hampshire, and South West, including Dorset and Wiltshire, along with strong and resilient Central London and Greater London.
Julie Mutton, a partner at Smith & Williamson’s assurance and business services team at the South Coast practice in Southampton, and a member of the firm’s property and construction group, said: “Confidence in the sector remains a problem.”
She added: “The availability and cost of funding, along with poor economic growth, remain the key issues for the property sector, with 46% of our 460 respondents stating that the time required for profitability to recover with be four years or more, with a further 30% quoting three to four years.
“If that is the case, then the sector is a little over half way since the unprecedented events of the global banking system meltdown in 2008.
“Years of excess, fuelled by the lending and property booms pre-2008, are now taking years to unwind, proving a very bitter medicine indeed.
“However, these challenges are not unique – the same is no doubt true for many businesses across southern England, which are after all the occupiers or employers that drive demand for most property.”
Respondents, asked what they would do to assist the property industry, selected these key initiatives, in order of priority:
Enhance bank lending
Simpify planning regulations
Use public funds to finance infrastructure
Cut property taxes and rates.
Many respondents called for reductions in stamp duty land tax , rather than reliefs to business rates, along with reductions to Section 106 (community infrastructure and social housing obligations).
Julie said: “Transaction, ownership and development taxes, including green initiatives, are perceived to be acting as a dead weight on the real estate sector when it is least able to shoulder the burden. The call is for simplicity and consistency.”
Other snapshots:
Smith & Williamson’s survey showed that, regarding residential, 39% were confident about the outlook, whereas last year there was a slight bias towards a lack of confidence.
Julie said: “The majority of respondents where either unsure or not confident. Opinion is clearly divided, which in view of the conflicting, variable and unpredictable factors that will have an effect on the sector over the coming year, is hardly surprising.
“Having said that, 60% were of the opinion that taking a five-year view now is a good time to make a residential property investment, which is a significant increase from 51% last year.”
Enthusiasm for commercial property investment deflated since last year, with 53% of the opinion that taking a five-year view now is a good time to make a commercial property investment. That compares to 63% last year.
Julie said: “The main reasons for this pessimism were oversupply of shops and a lack of occupier demand. A lack of visibility of future demand and residual values are real issues for investors.”
Regarding the raising of finance, 39% reported that they expected their business to be constrained during the next 12 months due to a lack of credit.
In relation to property sectors, retail received the most pessimistic outlook, on the back of what is reportedly the largest squeeze in living standards for nearly a century.
Julie said: “This is hardly surprising given the constant stream of administrations we are all witnessing, including latest high street victim street Comet, with real incomes falling 13% since the financial crisis.
“This troubled sector continues to be in for a choppy ride, with some landlords particularly exposed, as consumers have lighter purses and wallets.”
On the positive side, respondents were most positive about, in order, residential, agriculture, infrastructure, social housing, industrial and office.
To order a copy of the report please contact Smith & Williamson.
