It says that further short term price growth is likely to be driven by strong buyer sentiment underpinned by an improved economic outlook.
However, beyond price growth prospects for property markets will be dependent on earnings growth given an erosion of mortgage affordability due to rate rises.
It also says that with the potential impact of Help to Buy limited by lending criteria and the ability of borrowers to meet them, the demand for rental accommodation is likely to continue to be underpinned by a lack of accessibility to home ownership.
Households in the private rented sector are expected to grow by one million in the UK over the next five years presenting a significant opportunity for institutional investment.
Prime Central London has been the best performing residential market since 2005, fuelled by wealth from the financial services sector and strong overseas demand. In 2013 price growth slowed in response to stamp duty changes. ‘Further political focus on high value property taxation is likely to temper pre-election demand, with the tax policy adopted the next government determining growth prospects immediately thereafter,’ the report points out.
It also says that there are prospects for further growth in UK farmland values remain but land quality, type and location are critical. However, the influences for future growth are finely balanced against the risks.
‘On the one hand, supply is historically low, the product is finite. The increased demand for land to provide renewable energy sources, which is competing with food production to feed growing populations amidst rising concerns for food and fuel security are all drivers for a competitive marketplace,’ the report points out.
‘However, there are always issues which threaten to upset the balance including interest rates, debt due to pressure on profitability and cash flows, changes to taxation and subsidy regimes, all of which have the potential to increase the supply of land available, therefore putting pressure on future price growth,’ it explains.
‘During the next five years we forecast growth will be more muted than that recorded over the past 10 years. We also expect significant variations between the rates of growth across the farm land market. Currently the value gap between the best and the poorest land, is as much as £4,600 per acre,’ it adds.
The major theme in the UK commercial property market in 2014 will be a more widespread recovery, according to Savills. ‘2013 saw a continued robust pickup in tenant and investor demand for all types of commercial property in London, but we expect that 2014 will see this interest widening to cover the key regional cities, distribution hubs, and regional malls.
This recovery will be driven by improving business confidence on the back of the better domestic and global economic outlook,’ the report says.
‘We expect debt markets to loosen slightly, though finance for speculative development and tertiary investments will remain virtually nonexistent outside London. Risk averse international investors will continue to be heavily biased towards the capital city, but some will be tempted to the regions by higher yields and less competition. The more risk embracing investors will be looking to capitalise on the historically wide spread between London and regional yields, as well as the even wider spread between prime and secondary,’ it adds.
