We hope you enjoyed reading our 2017 Property Market Review and Predictions Part 1- if you didn’t catch it then you can find it here.
Part 1 was all about 2016, the predictions we made last year (and how acurate they were) and what REALLY happened throughout the year….if you cast your mind back- there was a LOT going on.
Part 2 is all about the future, and our recommendations for 2017, some of our predictions are along similar lines to last years and we are expecting this year to be slightly more stable than last (but who knows with a certain new POTUS at the wheel.)
Our Recommendations for 2017:
(Following a similar format to previous years, please find below our thoughts for the market in 2017.)
We remain “confidently optimistic” about the residential property market in 2017 unless some “shocker” occurs! Whilst returns may not be huge, it is a good, positive, stable market; just the sort of market people want exposure to.
As per previous years, we repeat and reiterate that; residential property investment is a long-term investment over a 5+ year time horizon. Predictions over 12 months are provided for interest only, rather than any forecast of investment performance.
- Capital values: Direction: upwards, Magnitude: 4%.
A national house price increase of 6%, or the equivalent of a real house price increase (after inflation of c2%) of 4%. Like last year, and boring I know, but there is nothing wrong with a good steady long term positive return! This the just what we want.
- Long term capital appreciation: As above, although this will take another 4 years to really appreciate the accuracy of our prediction! Last year we forecast a 5-year capital return of 23%, we have done 6% in 2016, this leaves 17% to achieve by the end of 2020. Combine this with a running net rental yield of say 5% in the Midlands; this is an attractive blended return of capital appreciation and annual rental yield.
- Regional variations in property prices: The market is highly fragmented and it is imperative that residential property is purchased in the right location (location, location) and at the right price. Same as in 2016, we believe the East Midlands and East of England will continue to outperform the North East, North West, Wales, and South West. The “East” is economically vibrant and will benefit further due to its proximity to London and the South East.
- Rental growth: Will be 4% again. There is constrained supply of rental stock, whilst demand continues to grow. Job mobility and a generation of younger workers priced out of home-ownership puts further pressure on rental levels over the longer term. Our lettings teams rarely have units on the market for long before they are snapped up.
- Transaction levels: Will be down a small amount from 2016; expect 1.1 million not 1.231 million or a 10% fall. Tinkering with stamp duty levels does not work; it will not affect the marker per se, but it will affect the revenue streams of estate agents!
- Interest rates: base rates are presently at 0.25%. We expect a small rise to 0.5% at the end of the year. The rise will be due to rising levels of inflation caused by sterling weakness. This prediction is becoming more and more difficult, suffice to say interest rates will not rise aggressively.
- House builders: after a poor 2016 we think share prices will be flat in 2017.
- Prime Central London: A difficult one. We think this will be flat for 2017. Properties under £2m may increase marginally by 2-3%, and Prime Properties above £5m may drop 5%. In between is anyone’s guess and probably more dependent on where in London, what type of property, new build or traditional etc. Due to the weak pound, international buyers are still in the market, what will happen to the pound in 2017 we do not know, but London is far more affected by Brexit and sterling than the rest of the UK.
- Buy to let sector: Is alive and kicking despite the falling mortgage interest relief (which only affect investors with mortgages, which by the way are less than 50% of investors), and despite the increase in stamp duty for second homes (which can be amortised over 5+years).
- A couple of other brave (or could they be stupid) predictions for 2017: North Korea will increasingly worry the world (which we predicted in 2016 but I think Trump could reignite with ease), oil prices will trade between $40 and $70 throughout 2017, our stock picks for the year are long Countrywide plc, short Purplebricks, the FTSE will end 2017 lower than it started the year, Brexit negotiations will be generally positive, sterling will strengthen against the euro hitting E1.25 and pre Brexit levels. One of the world leaders will be assassinated.
- We predict that 2017 predictions will not be our best! We called the market well in 2015 despite not knowing who would govern the UK nor indeed what their economic policies might be. Our predictions were not too bad for 2016 considering Brexit and Trump. We think it might be a bit more stable in 2017, one would hope so, but be prepared for the “unknown unknowns”.
Given our predictions for 2017 above, residential property will be a steady performer. We aren’t looking to shoot the lights out though, this is just the type of market that is ideal for long term residential investment.
More importantly is relative performance; HOW will property compare RELATIVE to the other asset classes of gold, equities, bonds and commodities?
Time will tell, and past performance is no prediction of the future, but the historical attractions of “property” remain as strong today as ever; lower volatility, a tangible asset, a real asset with real tenants, an investment that is easily understood, and in an environment of limited supply and increasing demand.
No wonder pension investors think property is the best asset class.
In an increasingly unstable world, we believe the lower risk returns of residential property will prove attractive to many investors.