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Confidence fragile in UK property, industry wide survey shows

Downside risks are significant and the industry has clearly not ruled out a double dip with the lack of finance the clear number one threat, the latest survey of the residential property market from Savills shows.

Base rates are forecast to rise to 0.8% by the autumn 2012, and to 4% by 2016 and the majority expect UK house prices to fall in the next 12 months, but only 9% of respondents expect falls in London.

But 60% expect private equity funding to increase and the private rental seen as a real opportunity, with more residential funds expected in the coming year.

The market is adapting to a significantly altered environment in virtually all areas of operations, according to the research which polled 800 professionals from the worlds of social housing, estate agency, residential advisory, investment, development and finance.
 
An overwhelming majority of respondents, questioned in the eight weeks to 16 September, expect activity levels to rise next year, although they identified clear and significant downside risks to their businesses.
 
‘A lack of finance is perceived as the clear number one threat. And concerns regarding a lack of corporate finance were matched by worries over a lack of domestic mortgage funding and the withdrawal of public funding,’ said Yolande Barnes, director of Savills residential research.

Economic growth is expected to be negative, with development profits down, while rising mortgage rates, base rates and finance costs are seen as significant risks. The base rate is expected to rise to 0.8% by this time next year and to 4% by 2016. There are strong expectations, particularly in the banking sector, that the cost of finance will rise.

The availability of finance remains a significant concern.  Only one in ten of all respondents expects public funding levels to increase either for housing development or investment, while a majority, 60%, expect higher levels of private equity to be available for housing development and investment.
 
‘There appears to be a general expectation that property will become more equity reliant in future. This marks a real change from decades of debt-reliance and means that working practices will have to change for many players and new partnerships and teams will be forged,’ explained Barnes.

House price falls will compound the issues outside London, it suggests. The balance of opinion amongst all groups surveyed is that house prices will fall across UK over the coming year, with the banking sector significantly more pessimistic than other groups. By contrast, London values are expected to rise as 67% expect price rises and only 9% think values will fall. and the balance of opinion amongst all groups of respondents was that yields will push out both in London and regionally, as rents rise ahead of capital values.

The private rented sector is no longer perceived to be a niche sector even among those that were considering it to be so last year.  A majority, 63%, expect to see more residential funds emerging over the next year, a view expressed equally by the financial sector, developers and investors.
 
‘It would appear that the case for residential is being made effectively and it is tempting to say that this makes significant investment in the sector a real possibility during 2012,’ said Barnes.
  
‘We are not out of the woods yet though. Although the industry is feeling more resilient than in our 2010 poll and development, investment and other activity is expected to increase, there are still many areas of concern and confidence is fragile. The residential property industry has clearly not ruled out the possibility of a double dip but is nevertheless keeping calm and carrying on. We expect to see continued new initiatives and innovations as it continues evolving against a backdrop of significant change,’ she added.

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