Our RESI 10 and RESI 11 market sentiment surveys showed that the industry is good at predicting ongoing trends in the residential sector but less good at understanding the wider economy and its impacts. This makes the industry vulnerable to macro influences and big changes of direction. How is RESI 12 reading the runes?
The industry demonstrated a solid understanding of current trends and immediate changes in the property sector, accurately predicting rising rents, especially in London; yields moving out; London’s rising capital growth and other regions’ falling prices.
However, predictions on the direction of travel in the broader economy and longer-term issues affecting the economy and residential real estate were less accurate. The recent unexpected increase in developer profits caught the industry completely by surprise. Most respondents had expected them to fall.
It turns out they have increased by around 25% in 2012 against
the previous year.
Meanwhile, the majority of respondents to the 2011 survey predicted that interest rates would rise on average to 0.8% when in fact base rates have remained at 0.5%, with some threats by the Bank of England of further reductions. Similarly, the cost of development finance has reduced slightly – but last year’s survey respondents widely predicted rising costs.
Where will the money land?
The industry appears to be split on where money will be landing in the coming year. A small majority anticipate more money for housing investment, but less funds for housing development. Encouragingly, bankers are the most positive on both (see Graph 1).
The public sector and housing associations are most pessimistic on availability of money for affordable housing. Austerity measures in the public sector and a weak UK economic outlook have taken their toll, and this sector is under no illusion as to the amount of housing grant that will be available in 2013.