Property finance trends for 2017

Many of the more pessimistic post-referendum predictions have not been borne out. Nonetheless we head into 2017 with a high level of political and economic uncertainty. One result of this is likely to be a relatively low level of transactional activity, with buyers and sellers stalling on big decisions until negotiations with the EU show some tangible progress. However, beneath this overarching trend we expect a number of strong underlying themes to continue and others to emerge in the coming year. The private rented sector looks set for a period of consolidation following changes to taxation and mortgage regulation. Small-scale amateur landlords, who constitute the majority of the market, are faced with the choice of adapting to the new regime or exiting, while institutional investors and professional landlords are expected to increase the delivery of new homes built specifically for the rental market. New schemes will be launched out of London and the biggest cities, increasing the quality, the variety of pricing points and service propositions available to tenants. A varied cast of overseas investors, particularly from Asia, will target UK commercial real estate assets for debut acquisitions. A significant number have already acted or at least made initial enquiries, attracted by the minor correction in pricing and a weaker sterling, and have not been put off by concerns around Brexit. They consider the UK to be a core market and are predominantly longer-term investors. Domestic institutional investors, on the other hand, are likely to remain cautious, and one trend that looks set to persist is their continued re-weighting away from smaller-scale and local retail assets. Much of this stock will find its way into auction rooms to be bought by local private investors attracted by the substantial yield premium versus alternative asset classes. Growing levels of activity in auction rooms highlight the real benefits of the auction process for both buyers and sellers – speed and predictability of execution.  Once the hammer goes down, both parties know with a high degree of certainty when the deal is going to complete and what the price is going to be. This is quite rare in an industry where every deal is different, and a large number of processes are involved, some of which have barely changed in centuries. However, digitisation is streamlining many other aspects of life, from ordering a takeaway to finding a new house, and we are determined that the part we play in the process of buying property or building new homes will also become more efficient. To this end, we are currently piloting a scheme that aims to reduce the time it takes to get money to our SME customers by up to 75% compared with the current norm. The entire process is being streamlined to provide a decision in principle on 80% of enquiries within a matter of hours, with documentation provided on day one and a clear and transparent path towards release of the funds. As a bank, we cannot do much about the level of uncertainty facing the country this year, but we can at least ensure that our SME customers have one less thing to worry about when trying to get a project off the ground. As with all new year’s resolutions, there are bound to be some tests along the way, but we are committed to dramatically improving on market norms and delivering the best possible experience for our customers in 2017 and beyond. Paul Coates is head of real estate finance at NatWest and Royal Bank of Scotland