A frank view of the 2017 residential market

Jonathan Vandermolen, director of IMA Real Estate, on what the coming year holds for residential “Like an ageing rock star, I go on the road for the first two months of the year and see as many people as I can who will listen to my back catalogue. My victims include commercial and residential agents, private equity funds, pension funds, lending banks and insolvency practitioners. This gives me a feel for not only how everyone fared in the previous year but what the next 12 months may hold. Now that I have completed the European leg of my tour with MIPIM, I have seen over 200 people. My findings are somewhat confusing. Most residential development and new homes firm’s income was down anywhere between 15% and 50% on 2015. The top end of the market is very flat with buyers in short supply for anything over £1m. There are approximately 60,000 flats under construction in London: 36,000 have exchanged contracts, 24,000 are unsold and 1,000 are completed and unsold, according to Molior London. A large proportion of these flats are sold to investors and the unsold units are at values in excess of £1,000 per sq ft. On the basis most people agree we are in a stagnant at best but more realistically a falling market – why continue to buy off plan now even if your dollars and euros are encouraging you to do so. Take a look at the rental market to get a feel for the domination of investors, many of whom now own flats that they can’t rent. A quick look at two-bedroom flats on Rightmove and there are 450 in Nine Elms, 784 in Battersea, 1,086 in Canary Wharf and 1,275 in W1 alone. Most rental agents are telling me that despite a perky start to the year, tenants are in short supply, meaning some of these people are eventually going to have to sell. As for developers, every man and his dog is in what is now termed the affordable end of the market which is allegedly £500-£800 per sq ft. This makes two-bedroom flats of 750 sq ft from £375,000 to £600,000 – still a lot of money, but don’t worry, Help to Buy – or should we now call it Help to Sell – has come to the rescue. To qualify for Help to Buy, you need a minimum 5% deposit, which at the above prices is £18,750 to £30,000. This doesn’t seem like a lot but if you don’t have the help of the Bank of Mum and Dad, then based on the average salary of a 30-year-old in London running at £35,000, even for a couple who are already renting, that’s a pretty tall order. As for buying without planning, most agents are quiet and short on stock as vendors have unrealistic expectations – or in more cases have paid far too much of someone else’s money, not achieved what they thought, and now can’t afford to sell or don’t want to give up their monthly management fees. In many cases, this realisation will not set in until either planning has been refused a couple of times or units are completed and unsold for a period of time. Then there is the oversupply of cash from all over the world and the huge swathes of debt from lending, or Challenger Banks as they are now known, that probably have lent something in the order of a £2bn-£3bn and by my best guestimate have recently raised at least another £1bn, which needs to be ploughed into the system. A large proportion of these loans will also have expensive new and inexperienced equity or mezzanine. As for the agents, some of the old names with the big firms for decades are falling by the wayside and many of the younger agents in their mid-20s to 30s have decided now is the time to go it alone – but I don’t think so. All planning policy does is look at big regeneration projects and political wins that make headlines. What is still continuing to be ignored is the small- and medium-sized private developers who supply 80% of all new homes in London in schemes of 10 to 150 units. It’s easy to blame the planning departments but there are now 45% less staff in the system than in 2010, and there simply isn’t enough experience to go round. The outcome of all this a slow and difficult year light on transactions while the pain starts to set in. Debt and equity providers are looking carefully at some of their loans. Wages and the cost of living are out of kilter with property prices, with the next logical step being a rise in interest rates. But we that’s highly unlikely from this Tory government, even with extreme factions in the Labour party that could very possibly bring the whole market crashing down. They could reduce stamp duty, as even they must realise the loss of £1bn in tax in the last two years has done its job, but again are their political balls big enough? I think not. Finally, a small anecdote. When I was out on tour in early 2010, my favourite line looking back to the early to mid-2000s was that there were so many people developing, the banks were lending money to anyone with a pulse. Now they have been replaced with doctors, dentists and readers of the Mail on Sunday.”