2011 predicted to be slow for UK real estate market, followed by growth of around 4% in 2012

Prices in 2011 are predicted to fall in the first half of 2011, to stabilise in the second half and then growth returning in 2012 of around 4% followed by 5% in 2013.
 
But the focus will be on good quality properties in the short terms, according to leading international property consultancy and chartered surveying firm Cluttons in its forecasts for the residential market for the next two years.
 
It points out that the financial services sector is an important part of what will happen in the London real estate market and activity by overseas investors should also provide a cushion.
 
It describes a kind of ‘perfect storm’ ahead combining a lack of development finance and a planning vacuum, though this could provide opportunities for those with planning and finance in the right area.
 
‘The balance of power in most locations in the mainstream UK housing market has moved back firmly into the hands of purchasers, placing downward pressure on prices. We expect this dynamic will be maintained over the next 12 to 18 months as austerity measures take hold,’ said Andrew Stanford, head of Cluttons’ residential consultancy division.
 
‘We forecast UK house prices at the end of 2010 to be up 2.6%, but this reflects strong growth in the first six months and further price declines in the fourth quarter. Continued diminutive quarterly falls in the first half of 2011 are expected, stabilising in the latter half of the year, delivering a small overall decline in prices of 0.1%,’ he explained.
 
‘Looking further ahead we expect strength to return to the market with an increase of nearly 4% in 2012 and then 5% in 2013 and 2014 respectively, on the back of an improved economic environment and greater household confidence as the spending cuts work their way through the economy and the private sector takes some benefit,’ he added.
   
London prices hold up well for good properties in prime locations, he believes. ‘Buyers are undoubtedly seeking the comfort of good quality, well located property in which ever postcode area they are looking. While such properties are recording strong interest and positive price growth, more secondary assets are failing to attract buyer attention and are driving headline price falls,’ said Stanford.
 
Reflecting this, the company is forecasting Central London price growth of 2.5% in 2011, picking up to 6.6% in 2012. The pattern is similar in Greater London as a whole, although next year the pace of growth will be dented by household uncertainty, resulting in an increase in prices of 1.3%, rebounding to 7.6% in 2012.
 
‘The disproportionate number of households dependent on the financial services sector, directly or indirectly, has to an extent driven demand in London over the last year. Current demand profile indicates that such buyers remain strong in the market, though this factor should not be overstated,’ explained Stanford.
 
‘Despite the economic slowdown, London will continue to benefit from its predominance of higher value business activity and its focus for international investment. As a result the capital will fare better than the UK as a whole, both economically and in terms of house price growth. On an annualised basis we expect UK residential values to rise by 3.3% per annum over the next five years, compared with 4.4% per annum in Central London,’ he added.