Elections are a time of reflection
On May 7, 2010, the results of the parliamentary elections in the United Kingdom were announced. The Conservatives won, but they did not have enough votes to form a government independently, so they had to involve a third force in the coalition – the Liberal Democrats. This scheme of creating a government, which is quite familiar to Western democracies, is very unusual for England, where only Conservatives and Labour usually play a key role. After five days of political bargaining, Gordon Brown resigned, and 43-year-old Conservative leader David Cameron received an official proposal from the Queen to form the first British coalition government in the post-war years. The Conservatives have inherited a difficult political legacy. The main problem remains the budget deficit. Analysts believe that the conservatives will be very aggressive in cutting budget spending, while refraining from increasing taxes.
Knight Frank notes that the elections slowed down the real estate market: although sales volumes in April increased by 18% compared to April last year, they fell by 23% by March 2010. "Traditionally, during elections, interest in investments decreases, as people want to know which government they will be with to do business," says Tatiana Ignatieva, CEO of TSI Realty. "The news about the creation of a coalition of Conservatives and Liberal Democrats was positively received by the foreign exchange market: the pound's position against the dollar and the euro strengthened."
On the one hand, a slight strengthening of the pound creates favorable conditions for investment in British real estate. However, for investors whose assets are held in euros, conversion to pounds is currently unprofitable. However, no one can rule out that the euro will sink even deeper. But the currency factor is not the only one and not the main one. "If we look at the situation in the short term, the crisis in the eurozone is now having a positive impact on the UK real estate market, in particular, on its premium segment," said Elena Yurgeneva, Director of Business Development at Knight Frank Luxury Real Estate Department. – In April, in central London, the share of foreign buyers purchasing property worth over 2 million pounds increased to 56%. In particular, the number of buyers from Greece has increased dramatically – their share has increased from 3% to 6%. Greeks became the third after Russians (15%) and Italians (13%) among foreign buyers of luxury real estate in London. Wealthy Greek families invest in real estate in the UK for various reasons, but the main one is the search for a safe haven."
Low start is the key to success
The forecast for price dynamics in the coming months remains uncertain, but in the longer term, investors have reason to be optimistic. A year and a half ago, Knight Frank's London headquarters issued a forecast "Opportunities in an unstable world", in which it urged investors to make an acquisition in the first half, at least until the end of 2009, predicting further growth in real estate prices in the UK.
According to the company's experts, this growth should have started in mid-2009 and continued until 2017, and Europe should begin to grow after the UK in 2010. In relation to the United Kingdom, the forecast came true, and even with some advance of schedule: "Since March 2009, average prices in the UK have been showing steady growth, due to an acute shortage of supply and growing demand caused by low prices and mortgage rates," says Elena Yurgeneva – At the end of 2009, real estate prices in the Foggy Albion they grew by 3.4% (the growth in the second half of the year was 5.2%). London and the south-east of the country are leading in terms of recovery rates. According to the forecast, the recovery of the housing market throughout the UK will be gradual, growth of 6-9% is expected starting in 2011.
" One of the indicators indicating the positive dynamics of the housing market is an increase in rates and a reduction in supply in the rental housing market, as evidenced by a study by the Royal Society of Appraisers of Great Britain (RICS). At the same time, it is expected that domestic demand will be limited in the near future due to the harsh conditions for obtaining a mortgage. Although rates are at a very attractive level, experts believe that in the next two years banks will be forced to tighten conditions for borrowers unable to make a large initial payment, as they will have to pay off loans provided by the government in the midst of a liquidity crisis. However, internal mortgage problems have little impact on the premium segment of the London market, where foreign investors, who usually do not have capital problems, play the first fiddle.
Experts expect that the legislative initiatives of the new government will be favorable for the market. One of the first steps of the new coalition was the publication on May 13 of a document on the abolition of the unpopular "real estate information Pack" (Home Information Pack) among professionals, which obliged the seller to provide the buyer with detailed information about his property free of charge. "The cancellation of this package will be welcomed by most agents, who view it as an expensive bureaucratic obstacle to the sale of real estate," Tatyana Ignatieva believes. This measure was so expected that, according to TSI Realty Ltd, on the eve of the elections, many sellers temporarily removed objects from the market. However, it is not yet known when the decision to cancel the information packages will take effect.
The results of the crisis
The financial crisis has led to the stratification of the British real estate market. "The luxury housing market suffered greatly – the price drop continued until March 2009," says Elena Yurgeneva. – But then it showed exceptional growth, including due to the activity of foreign investors. In the year since April 2009, prices for luxury real estate in central London have increased by 21%. In this sector, demand significantly exceeds supply. Therefore, since the beginning of the year, we have seen an increasing number of deals at peak prices, especially in the areas of Mayfair, Kensington, Holland Park and Knightsbridge, where the supply of properties is low and buyers are willing to pay above average prices to get the right house."
The ratio of investment and consumer demand has changed dramatically in the primary market: if before the crisis the ratio of investors and end consumers was 70 to 30, now on the contrary it is 30 to 70. "In the elite segment, supply remains extremely limited," continues Elena Yurgeneva. – For agents, the real problem is to convince potential sellers of the need to put an object up for sale. A shortage of supply in the market can lead to a situation where potential sellers will delay the decision to sell until they see an increase in supply."
According to experts, now is the right, but very difficult time to buy. The problem for buyers is the overestimated expectations of sellers. Informed about the price increase, some owners are ready to exhibit their properties only at peak prices. But for any objects, with the exception of unique and exclusive ones, this strategy is very risky, according to Knight Frank, since the market has not yet been truly tested by a large volume of supply. "If the supply grows, then the overvalued objects on the market will stay for a very long time," says Elena Yurgeneva.
Time to hurry
What conclusion should the buyer draw from all this? "If you have found a property and can negotiate the price immediately, then you are in a strong position to get a real deal," says Tatiana Ignatieva. According to experts at TSI Realty Ltd, the expectation is hardly justified, since the market is accelerating and prices are likely to continue their growth in the third quarter of this year. However, most market participants do not expect a big price jump this year: probably, the annual price increase throughout London will not exceed 5% (Knight Frank predicts 3%), and even a slight decrease is possible in the whole country. London's elite sector is called the most stable today – it is supported by growing demand from foreign investors, who are poorly dependent on the mortgage situation and domestic political conjuncture.