There are signs the UK residential market is bottoming out, according to real estate investment and development company, Assetz.
The company said it believed the distressed property market had just passed its lowest point in terms of achieving the lowest possible price for buyers of residential property. Many housebuilders are running out of completed stock, it said, while others are successfully renegotiating their banking covenants, taking some of the pressure away to sell at prices well below build cost. Future stock will only get built if prices are above cost, which means it will be some considerable time before new supply comes onto the market, the firm added.
House price indices, which show house price falls ranging between 10 and 16 percent in 2008, will continue to show falls for some months to come, but investors and home buyers should appreciate that these indices are significantly delayed in terms of data capture, it pointed out. The delay can be as long as three months.
“A buyer who waits for two or three consecutive rising months from a house price index will probably have missed the bottom of the market by at least six months. In addition, the pricing in the distressed market will have improved significantly by the time house prices start to turn up, meaning the bargains available today will be long gone,” the company said.
Stuart Law, chief executive, added in a statement: “If the distressed property market had a house price index, it would have already reached the bottom and there are clear signs that these prices are beginning to turn upwards. There are multiple bidders for much residential distressed property – an early warning indicator that the wider market trend will change in the near future.”
He said savvy investors know they will secure the best price while consumer sentiment is at its worst.
The distressed sales market as a whole was under the most pressure from September 2008 to January 2009. During this period, interest rate cuts have made it more affordable for people to stay in their homes, reducing their need to sell, while developers who are refinancing their businesses are not as desperate to dispose of stock, or have already raised the cash they need. There will still be further distressed sales in the market for a long time to come but the huge discounts created by a dearth of buyers are beginning to moderate.
Assetz pointed out the UK government is now offering substantial guarantees against loans to businesses and guarantees to banks for mortgage lending. This, it expects, will be extended to large corporates, including housebuilders. This will significantly improve their borrowing position and take the pressure away from selling at such low prices.
A number of private equity real estate funds have been set up to capture bargains in the UK housing market.
In November, London-based boutique fund manager, Managing Partners Limited, snapped up 18 of 48 homes in one street in Portsmouth in the south of England and intends to buy another ten because prices have fallen so much. In a statement, the firm said its open-ended British Opportunities Fund was acquiring the homes for as little as £89,000 (€106,000: $136,000) when the same properties were changing hands for as much as £205,000 two years ago.