The almost revolutionary political changes that occurred in 2016 continue to create reverberations as we move through the first quarter of 2017. The ‘fear’ of the unknown continues to plant a sense of caution amongst investors, who are faced with trying to assess the economic impact of the political reforms and how this will alter existing, and future investment decisions.
So, what can be predicted for the year ahead?
2017 will be a challenging year, particularly whilst the full impact of Brexit and Trump; “brexitrump”; reverberate around the market and impact on market confidence. Investors do like stability and certainty, neither of which will be prevalent in this calendar year.
The Marketing Department at Bridgebank Capital has undertaken in depth research and analysis of the property market,; collating data and opinion from property analysts, leading surveyors and institutional mortgage providers, in order to formulate and assess its lending strategies and market positioning for the year ahead.
What conclusions have been drawn?
Whilst it is without doubt that investors remain cautious, property investment retains its ‘status’ as an asset class that is viable and profitable. Following fears that the Brexit vote could result in the country tumbling into recession, with the property market possibly experiencing a fall in values, demand, trading activity and rental incomes; the seismic shock anticipated has certainly not come to the fore, and it is unlikely that this will occur.
However, there have been changes and impact issues that we must consider as we move forward into 2017.
The Value of Sterling and Inward Investment
The devaluation of sterling has certainly caused some concerns within markets, and the knock on effect cannot be discounted in relation to the economic outlook of the UK. However, the fall in the value of the pound, has supported some heightened activity in the UK property market from overseas buyers, where currency gains have directly created a purchase discount for buyers, pushing through some unexpected activity post Brexit. In fact, in 2016, 75% of investment in the London property market was driven by non-domestic investors
As the value of the pound is expected to remain low, we are likely to see a sustained level of foreign investment in to the market, especially from Chinese and Middle East buyers
At Quantum by Bridgebank Capital, we are seeing evidence of a sustained level of inward investment, with some activity starting to expand outside of the Capital, and into other primary large urbanisation city locations. Market experts have predicted that regional locations will become more prominent and attractive to foreign investors over the next five years, and we will see growth in the number of transactions being completed outside of London.
The Regional Market
The property supply/demand imbalance that spreads throughout the UK continues to drive investment activity in the wake of Brexit, particularly outside of London, and across a diverse range of property types. Investors who are seeking stronger rental yields and capital value increases in the medium term, are recognising the scope of the regional market, with greater returns more readily achievable and a higher level of tenant confidence experienced.
Alongside steady rental yields, landlords in these locations are also securing growth in rental income, demonstrating the strength of the market. As tenant demand in the London market place appears to be cooling, regional property sectors are seeing a greater level of demand.
It is therefore apparent that whilst London will always attract investment, the market is significantly less attractive than regional prospects at present. We can therefore expect to see increased transaction levels in these locations moving forward.
Challenges to the Private Rented Sector
The requirement for investment in the private rented sector is undoubted, with focus on providing a greater range of property types now being promoted. Whilst this is the case, investors are faced with challenges regarding the viability and profitability of investment opportunities as a result of increased Stamp Duty Land Tax and greater regulation surrounding Buy to Let investors.
As a result of these challenges we are likely to see an increase in rental charges as buy to let investors seek to ‘cover’ their costs, whilst maintaining the same levels of return previously achieved. It is likely however, that investors will seek to spread the risk that they face from investment through the acquisition or development of a larger portfolio, possibly containing a more diverse range of property types.
Residential property does continue to deliver greater returns on investment than sovereign bonds and cash, and will therefore continue to attract investors. It is predicted that 2017 will see investors seeking out restoration and redevelopment opportunities, where value added benefits can be achieved.
Across the Bridgebank Capital Group, we recognise the significant returns that investors can achieve through such investment projects and provide the funding required to support this investment.
The Commercial Property Sector
The UK Commercial Property Sector has historically been considered as an attractive proposition for investment due to long leases and robust rental covenants, demonstrating a level of security to investors. As a direct result of the political and economic uncertainty the UK currently faces, this market perception has now been challenged.
It is without question that commercial tenants do still require a property from which to trade, however, the uncertainty that currently clouds the market is impressing upon tenants the need to have greater flexibility within lease agreements. Therefore, it is likely that until greater clarity is achieved regarding the Brexit process and the long term economy, shorter lease terms will be negotiated and agreed in order to maintain occupiers, and reduce the prospect of voids.
As fear of the unknown looms over the country, commercial property development is expected to reduce, due to the level of risk involved and funding appetite towards risk. In fact, it has in fact been predicted that up to 50% of planned commercial development projects in London alone could face delays.
Although it is likely that we will see a downturn in some areas of development, the limited supply of commercial property, particularly offices and logistics property, will force investors to consider alternative property opportunities, such as commercial property investment outside of London.
The UK property market is faced with uncertainty, but, continues to attract investment across both residential and commercial sectors. With regional locations gaining prominence and continuing to be faced with a distinct supply/demand challenge, the UK property sector will maintain its standing as a strong investment prospect.
Across the Bridgebank Capital Group, we recognise the insatiable demand for finance required to fund such opportunities and will therefore be announcing a new suite of competitively priced products to support investors.