Almost without exception the main new build    companies have changed their product mix reducing the proportion of low cost, cheaper housing in favour of more upmarket properties. It may help profits in the short term but it is using up some of the prime property land banks rather than brown field sites. It may be one of the drivers behind the slackening of the planning rules to make this profit-making even easier. One thing is sure it is doing nothing for the lower end of the property market, first time buyers and social housing.

Builders 2011 Results and Views

Taylor Wimpey are one of the builders to announce bigger profits from ‘quality over quantity’ and taking a developers view of profit in addition to the profit they want out of building. Double their money strategy. Chief Executive Peter Redfern says ‘there is pent-up demand but psychologically a lot of people are very nervous about Europe’.

Barratt’s chief executive Mark Clare reporting full-year profits of £42.7m after losses of £33m a year earlier said. “We have made some considerable progress in rebuilding profitability – by optimising selling prices, improving operational efficiency and securing new higher margin land,”

This month Chief Executive Greg Fitzgerald of Galliford Try said profits rose a third to £35.1m: “We exceeded our profit expectations during the year as growth in housebuilding accelerated in the second half, testimony to our strategic focus on southern England.”

Persimmon saw its performance for the first half of this year improve by 52 per cent from the same period last year when its pre-tax profits were £39.4m. Group chairman Nicholas Wrigley told shareholders “We remain committed to our strategic objectives of margin improvement and cash generation”.

Housing Market Comment

• What of stakeholders as opposed to shareholders – well that’s the economy for you!
• Builders need encouraging or forcing to increase their output. That output would tend to be at the lower end of the market where need is greatest yet demand hard to finance.
• Government action or lack thereof will be one of the defining issues when we look back on the Cameron years.

Developers are sitting on 300,000 to 350,000 plots

that already have planning permission.

• With the current rates of new build and new permissions being sought this number is continuing to grow.
• Whilst this looks like 2-3 years supply of homes (124,000 were completed in 2010) if the markets were bouyant far more construction would be taking place.
• Developers hold these approvals for several reasons mainly related to them achieving maximum gain for themselves.
• Resubmission of planning approvals to increase the density of housing often takes place and this can be a slow process.
• Grant Shapps said small buildering companies still had financing problems and faced commercial risk.
• It is not the fault of the planning system that these properties are not being built according to the Campaign to Protect Rural England as they pursue the agenda to stop planning reform.

Comment
A stick and carrot is needed to clear the log jam.
Tax the holding of morbid approvals.
Create pre-sale loan packages secured against the work-in-progress.
Encourage buying off plan by a discount on stamp duty.

Empty Homes Total 750,000

• Grant Shapps also commented on the 750,000 unoccupied homes that are empty for a multiplicity of reasons.
• It is believed around half of these properties could be brought back in to occupation within a short timescale.
• Treating ‘voids’ as a core issue and prioritising maintenance and refurbishment would help.
• Speeding up the processes around change of ownership including probate and normal property sale would also help.
• A series of many small initiatives would eat into the number of empty properties. The government can set the tone and local action should follow through.

The Empty Homes Agency has made the following suggestions based on its comments from members
’1. Give communities the right to use long term empty homes
2. A publicly-accessible list of all public and private long-term empties
3. Double council tax on long term empties + cash to self-helpers
4. Reward residents w/ C-Tax discount for reporting empties
5. Link Council’s “Renewals Officer” pay to New Homes Bonus
6. Reward people on housing list by moving up a band for reporting empty homes
7. Enforced EDMOs – Residents can issue the Management Order’

Comment from Housing Market
The reluctance to take a real loss rather than a book loss as prices have fallen is a psychological constraint. We need to find a way other than rampant inflation to address this issue.
More publicity and education flagging up the issue and options is needed.
The current lack of attractive investment alternatives discourages people to sell properties.

Empty homes toolkit form Empty Homes.com or Homes and Communities

Read Right to Buy – Right to Own for a look back at the Thatcher policy.

The number of top of the range properties for sale is 10% above that last year. 21,000 homes are currently on the market at prices above £1million. They are reputedly worth a collective £47.8 billion.

Is it a sign that the market for expensive houses is strong or weak. We suggest the later. More supply may reflect fewer deals being done or more urgency to realise equity from historically high property values. It is no means certain that more ‘homes for sale is despite falling prices’ it could be because of falling prices and a fear of what is still to come.

London a Special Case?

• Westminster, Hounslow and the City of London are still riding high with average prices increasing more than 10% in the last year.
• Eleven London boroughs showed a reduction in average prices last month.
• 9500 London homes in the multi-million pound range are currently on the market.
• Lending constraints in the UK have not stopped overseas investors looking for prime property in London.
• What the August riots will do to London’s international reputation remains to be seen.

Sources

LSL Property Services House Price Index July 2011

Investec and This Is Money say ‘The £1 million-plus hotspots are London (9,497); Surrey (2,242); Hertfordshire (967); Kent (908); Essex (689); Buckinghamshire (581); Hampshire (512); Middlesex (464); Berkshire (458); and West Sussex (357).’

• In June 2011 mortgage lending was up by 16% compared to the same month last year. ‘Admittedly any increase was bound to look big against the low levels of lending in previous months.’ Guardian
• Rising inflation and falling house prices are taking a lot of equity out of your property investments. This market correction is most notable outside London and areas where demand still exceeds supply.
• Average house prices according to  Communities and Local Government House Price Index was £204,164 yet the Land registry comes up with a figure of £161,823. Go figure these government statistics.

House Building Update

• Local Authority planning permissions were down 17%  in quarter 1 of 2011, half that of  5 years ago, despite government ‘words and promises’ to the contrary.
• There are approximately 5 million people of waiting lists for homes.
• The transition from targets to bribes (I mean incentives) is causing delay in new build starts.
• Monthly average new home starts is only about 13,000.

In the words of John Ruskin “When we build , let us think that we build forever”. EnvironCommunities

For more on statistics read Damn Lies

Problems of Boom and Bust Cycles

• These cycles distort housing choices and resultant stress levels
• The risks both financial and social are increased.
• Boom and particularly bust drives mortgage arrears and repossession rates.
• The cycle curtails housebuilding and limits capacity when more supply would bring some stability.
• According to JRF there is increased intergenerational inequality.
• Home-owners who have repaid their mortgages experience lower housing costs that mitigates pensioner poverty. Exclusion from the housing market increases the burden on the state.

Suggestions to Improve Market Stability

• The UK is more volatile than most other developed markets. Exploring alternatives to the UK’s large proportion of home ownership should bring more stability.
• Increasing housing supply ‘significantly’ is the key to satisfy the growing population and current and future demographic changes.
• Change away from increased home ownership for marginal purchasers towards assisting those who are able to pay for their housing over their lifetime but not able to cope with the risks involved.
• The report stresses ‘the importance of maintaining an affordable social rented sector as a part of the UK’s mainstream housing system.’
• Restricted access to mortgages and credit controls, such as maximum loan-to-value mortgage ratios may be in the long term public good.
• Taxation on boom times should be alleviated by changes to stamp duty and capital gains focused on reducing volatility not raising revenue.

Comment

• Volatility increases the ‘churn’ of housing stock to the advantage of intermediaries not owners or tenants.
• Whilst the subject is extremely complex the opportunity for the last government to make long term changes was missed or the results even exacerbated.
• Social implications have economic consequences. This JRF report should as a minimum generate more publicity for the housing stability cause.

Sources

JRF  and access to the full report

Evidence reviews commissioned by the JRF Task Force are available on:

• Local housing market volatility
• The private rented sector
• Low cost home ownership and risk
• Increasing supply in the social rented sector
• Public attitudes to housing
• Home ownership and the distribution of wealth
• International systems of housing taxation and subsidies
• Tenure rights and responsibilities

The same or worse than most other governments have done. What a shame when  they have an ‘open goal’ in which to score significant changes.

Policy Failures

• Making special provision for one sector or group in society such as first time buyer or key workers only prejudices others.
• Increased mortgage supply or pressure to create more supply of finance only fuels the price of houses. Monetary policy is dictating housing policy.
• Supply of housing is the key issue not demand. We need more housing promptly and in sustainable tranches.
• Localism is in conflict with the easing of planning restrictions.
• Capital gains tax rules favours the individual who can circumvent the tax too easily.
• Attacking on too many fronts at the same time leads to the law of unintended consequences.

Suggested Policy Improvements

• Do not tinker on several fronts but excel in one key area – increase the housing stock.
• Be consistent and stop knee jerk reactions by taking a long term view.
• Cut subsidies to owner occupiers and bring larger houses into more economic use.
• Do what you do do well!

The USA has been releasing positive economic data and international stock markets seem more stable than a year ago. Now may be close to the bottom of the international property market and thus a good time to buy.
The locations for these opportunities depends on your own desires and aspirations but below are a few ideas and considerations.

Market Opportunities

General Comments. As ever look for quality locations and property with low maintenance issues.
Do your own research and get sound local professional help.
Florida is popular with UK investors with good air flights. Sarasota has begun to increase sales prices but the dollar is still weak.
Barbados is an expensive but slow market. Invest for the longer term not a quick in and out.
Cyprus suits many British investors on a climate, accessibility and functional basis. Avoid the hot resort areas unless you like to party.
Malta is another Mediterranean option with low property taxes.
Istanbul apartments may produce a rental income with a capital bonus if and when Turkey joins the EU.
Berlin is a capital resort for trippers and the locals rent more often than buying so an appartment may be a good eachway bet.
Tuscany remains a popular region and prices have remained comparatively strong. Seek out areas with good infrastructure.
Tarn in the Cote d’Azure region of France is not cheap but then again second properties are not for cheapskates.

Newer Opportunities

• Markets continue to develop and risks change with time. The middle East needs to settle back down and that may take some time.

• South Africa is one potential region for British investors to consider. More and more holiday makers like the lack of jet lag when flying due south.

• Spain has suffered economically but is still a popular tourist location and property is cheap as chips.

• Ireland around Dublin would be a gamble on the economic recovery but punt if you want.

Amazon for a copy of The Global Property Investors Toolkit.

Many UK residents have been chasing the sunshine with a holiday in Madeira and some have returned thinking of acquiring a property on the Island.
The population of Madeira is 275,000 rising to 300,000 when you include the tourists at the height of the season. New road systems have made cross island travel far easier and more apartments or condominiums are available for rent or purchase.

As an autonomous region of Portugal the group of islands including Madeira and Porto Santos are in the Eurozone. They will be suffering the effects of the Portuguese economic crisis for the next year or more and good property prices may offer a buying opportunity.
Timing will be important if you are planning an investment rather than a family retreat or home.

The purchasing process of escritura is faster than we experience in the UK with no chains. A notary public recites the escritura deed out loud in front of the vendor and purchaser to protect anyone who may not be able to read. Then the vendor and purchaser sign the public deed, the purchaser hands over a cheque, the vendor hands over the keys and the sale/purchase is complete.
Costs of purchase amount to about 6-8% of the buying price.

Do not be too hasty in selecting your preferred location. Get to know the island and the areas and assess your general comfort level before talking to an Estate Agent or lawyer. New development on the island is strictly controlled and many areas are part of Unesco world heritage protected zones.
The same property may be advertised at significantly different prices by different estate agents so opt for Government licensed companies. Running costs are not unreasonable, local rates and utilities are fair but beware of the cost of renovation and maintenance if considering a house rather than an apartment.

Read Buyers Tips on nobregarealty

New build starts are down 41% over the last three months compared to the same quarter last year  according to Glenigan the construction researcher. New private housing starts are down due to a continued pessimism about the markets health, poor household income prospects and limited mortgage availability plus bad weather.

Social housing projects are also significantly down as a result of cutbacks in finance availability and changes to the support and funding regimes.

Options For the Chancellor

• Tinker with the stamp duty and other tweaks to rules and regulations. (Not part of George’s modus operandi)
• Free some more cash into the lending market. (A possibility as the banks have now repaid over 50% of the bale-out loans made by government during the financial crisis)
• Change the rules on capital gains tax for second homes, houses built in gardens and property transfer on death. ( Not sure if that will help or hinder)
• Vat or NIC tweaks aimed at helping those in the construction and building market.
• Innovation for funding social housing. (Why not use lottery funding post the Olympics.)
• Help for private landlords with tax breaks or other assistance. (Tories rule OK)
• Short term growth stimulous of a sort to be decided. ( Growth is the buzz but how will this manifest itself in the Housing market?  We must wait and see)

Problem Companies

Connaught’s administrator has broken up this failed support services group.

• Morgan Sindall acquired the social housing contracts.
• The asbestos and health and safety compliance division has been renamed Santia and sold to private equity.
• Centrica bought the gas and electrical services business.
• Part of Connaught Partnerships Limited’s business was transferred to Lovell Partnerships Limited.

A blip for Mite at Basildon where they have just been put under review after the company failed to respond swiftly enough to emergency call outs and urgent repairs during the first nine months of its contract.

Kinetics Group was formed by the amalgamation of seven businesses but recently concluded an emergency £2m loan. Liverpool Mutual Homes has decided to cancel a contract.  The 15,000-home association terminated a repairs and maintenance and gas services contract because it did not believe Kinetics was fulfilling its contractual obligations.  Turnover of the company may fall from £110m as 240 Kinetics staff will transfer to LMH but the company seems well supported for now. Full story inside housing

Rok collapsed into administration in November 2010 and most operations were closed. The only remaining division was the small social housing business. Scottish construction and the maintenance and improvements divisions were to be closed down. This was a severe blow to staff who were all directly employed by Rok.

The Opportunities

Mears is a listed social housing repairs company that said it was interested in picking up Rok contracts. They may be doing just that without buying into the company or it’s problems. 12000 people work at Mears to maintain, repair and upgrade the homes. In October 2010 Mears bought north west social housing maintenance specialist Jackson Lloyd in a £5m deal.

Apollo Group’s chief executive Dave Sheridan says ‘We are one of the country’s largest and fastest growing property services companies operating in the social housing, education and public buildings sectors…’

Kier Building Maintenance offers ‘specialist skills to the social housing, public and private sectors, providing a flexible, tailored approach to working with clients, whether they are social landlords, premises managers, residents or caretakers’. (web site speak).

Lovell have  areas of expertise including, day-to-day responsive repairs, void property refurbishments, programmed maintenance, and electrical and gas installations, servicing and repairs. They also seem very active with several new home developments.

Comment

• The housing repair and maintenance industry has demanding issues that require top class, proactive management.
• Poor or malicious accounting needs to be rooted out and a tight reign kept on the finances.
• Keeping cash flowing and investor confidence is crucial.
• Customers who used to operate their own maintenance teams convert to contract management like untrained rottweilers.
• Too often the resident is at the end of the chain and given too little appropriate response.
• Contracts rather than orders and service are the rule of the day. New contracts should be based on performance outputs not labour inputs or schedules of rates.