June 2004

Business Property Chronicle

Property Interest Rate Report
RICS - Housing Market Survey of England and Wales, three months to April 2004
ARLA - Government spurred into action by new tenancy deposit scheme for regulated agents as £1 billion remains unguarded
Land Registry - Property Price Report 14.06% increase in prices. Average house price in England and Wales now £166,404
CML slams "misleading" media reports
RICS rural land market for Great Britain - First quarter, January to March 2004
Halifax - Empty Homes - A National Snapshot
RICS slams Government move to regulate commercial leases

Property Interest Rate Report

Despite the ongoing debate about a potential housing market crash, surveyors are confident that prices will continue to rise in the months ahead, particularly in the North of England and Wales. In the latest housing market survey by the RICS (Royal Institution of Chartered Surveyors) published on 18th May, surveyors also predict that sales activity will improve in the South over the next few months.

Interest rate rises and speculation of house price crashes does not seem to have either significantly discouraged buyers from looking for their next home, or encouraged others to put their property on the market. This is creating what is commonly referred to as a “tight” market situation – and it is these conditions, which will create an upward pressure on prices over the next few months. In April, 35 percent more surveyors expect prices to rise than fall over the next three months, compared to 38 percent in March.

New buyer enquiries showed little change for a second consecutive month, with 4 percent more surveyors reporting a rise in enquiries than a fall in April, compared to 3 percent in March.

The number of properties coming onto the market remains little changed, as 1 percent more surveyors report a rise in instructions than a fall, compared to 7 percent in March.

Property sales remained static for the three months to April, averaging 32 per chartered surveyor. But surveyor expectations for future sales are gradually improving. Sales confidence is strongest in London and throughout the South East.

RICS housing spokesman, Jeremy Leaf, says:

"The expected springtime flood of properties onto the market has just not materialised. Many people are realising that the current number of houses for sale is as good as it gets for now, and are looking to buy quickly rather than risk paying more for a similar property over the coming months.

"In this environment it is important that both sellers and buyers are not taken for a ride. Sellers may find their properties are overvalued and sit on the market for a while, whilst some buyers are paying above the odds in order to secure a property. We need to caution against the market overheating again."

ARLA – Government spurred into action by new tenancy deposit scheme for regulated agents as £1 billion remains unguarded

The urgent need to safeguard tenants' deposits in the Private Rented Sector has finally been recognised by government just weeks after the ARLA Tenancy Deposit Scheme went live. While the government promised today (May 19th) to include measures in the current housing bill to require protection for deposits, consumer groups and tenants' rights organisations have already welcomed ARLA's Tenancy Deposit Scheme for Regulated Agents, TDSRA.

ARLA believes that there is well over £1 billion in deposits held in the Private Rented Sector that are not held by regulated agents.

The Scheme is to resolve deadlocked tenancy disputes over the apportionment and settlement of deposits following the end of a tenancy. When the letting agent is holding the deposit but cannot negotiate a settlement between landlord and tenant, all details of the dispute, along with the deposit money that cannot be settled, will be sent to the Independent Case Examiner for the Scheme. This will then be subject to expert third party adjudication and the apportioning of deposit money.

This breakthrough scheme, which replaces the scheme abandoned by government last summer, went live on May 1st and more than 300 ARLA members are already signed up. ARLA expects that the other two professional bodies; the RICS and the NAEA will join the scheme in the very near future. This is because it will greatly simplify the task of both agent and landlord as well as reassuring tenants that there will always be a fair deal through independent adjudication when they use agents signed up to TDSRA. Welcoming the Deposit Scheme, Shelter Director Adam Sampson said, "The ARLA Scheme will provide greater assurance to private tenants that their money will be held securely and returned speedily and fairly. ARLA's very welcome move needs to be backed by legislation to introduce a statutory default scheme for landlords and agents who fail to follow ARLA's lead in ensuring that the tenancy deposit rip off is ended once and for all."

Citizens Advice also welcomed the Scheme. Said Liz Phelps, Social Policy Officer, "Any industry Scheme needs to provide tenants with as much protection as a statutory scheme can deliver. The ARLA Scheme should provide tenants with a safe, fast and fair system for protecting deposits and resolving disputes with member compliance underwritten by ARLA itself. As such, Citizens Advice welcomes the Scheme that we believe should set the standard for any regulatory scheme," she added.

The Independent Case Examiner for the ARLA Scheme is Lawrence Greenberg, previously director of the original government-backed scheme. Each case will be assessed by one of a network of specially trained adjudicators, many of them drawn from the Rent Service, an executive agency of the Department for Work and Pensions. These adjudicators all have the relevant skills to draw on to assess disputes.

The Independent Case Examiner, operating as an Ombudsman, will then make a decision within ten working days and the deposit will be distributed no more than five days after that.

An independent, not-for-profit company, The Dispute Service (TDS Ltd), has been formed to manage the Tenancy Deposit Scheme. The company has been incorporated with an interim management board made up of professionals from the lettings industry, although the board itself has no role in the resolution of disputes.
Any regulated agent operating in Great Britain and Northern Ireland is eligible for the scheme if they belong to a professional body approved by the Independent Case Examiner. ARLA is the first professional organisation to achieve this status.

Said Adrian Turner, "Government has followed our lead because the Scheme is right for the industry and right for landlords, tenants and agents. It reinforces ARLA's commitment to promoting the highest standards of good practice in the Private Rented Sector and, yet again, the Association has led the way in providing the blueprint for regulation as well as quality standards."

Said Lawrence Greenberg, the Independent Case Examiner for the sector, "Independent, third party adjudication guarantees the return of tenants' deposits that are due, recompenses the landlord when that is due and removes the burden from the letting agents of having to resolve irreconcilable differences of opinion. We are happy to put our experience at the disposal of government."

Land Registry - Property Price Report shows 14.06% increase in prices, average house prices in England and Wales now £166,404

Land Registry today (11 May) published its latest quarterly residential property price report, covering the period January – March 2004
The report compares average prices and volume of sales with those for the same period in 2003. It also gives a breakdown of the average sale prices of old and new properties by property type. The following information is contained in the report:

England and Wales:

• The average price increased by 14.06% from £145,897 in 2003 to £166,404 for the same period in 2004;
• All economic regions in England and Wales showed an increase in average prices;
• The volume of sales increased by 12.27% from 217,262 in 2003 to 243,914 for the same period in 2004.
• 795 properties over £1 million were sold.

Greater London:

• The average property price increased by 9.39% from £240,126 in 2003 to £262,685 for the same period in 2004;
• The volume of sales increased by 14.19% from 28,417 in 2003 to 32,448 for the same period in 2004;
• 470 properties over £1 million were sold.

CML slams "misleading" media reports

The Council of Mortgage Lenders strongly criticised media reports misrepresenting its central views on the future of the housing market and future levels of interest rates. Contrary to reports, the CML Director General did not give an interview to the Sunday Telegraph, let alone one suggesting that interest rates need to double or are likely to double. In fact, the CML believes that base rates are likely to end the year at around 5.25%, and end next year at around 5.5%. The CML expects house price inflation to end this year at around 14%, and next year at around 8%.

Michael Coogan, CML Director General, commented:
"Our forecasts article observed that if the MPC specifically decided to target house price inflation and bring it down to single digits immediately, then interest rates would need to double. This was only ever designed as a hypothetical observation - we do not want it to happen, nor do we believe that it will. But it has become a media story that has spun out of control - and it is now time for it to stop. Real people make real financial decisions based on what they read and hear in the media - we want to make quite clear that they should be expecting a moderate rise in rates, not a doubling."

RICS - Rural land market survey for Great Britain - First quarter, January to March 2004

Despite rising farmland prices, farmers are fighting back into the market and buying land once more encouraged by improving commodity prices in certain sectors, according to the latest rural land survey published by RICS (Royal Institution of Chartered Surveyors).

Chartered surveyors have noted that the trend for non-farm buyers, until now accounting for an increasing share of the market, has been reversed, falling to 43 percent from 51 percent at the end of last year. Individual farmer buyers now account for 43 percent of the market, up from 38 percent in the fourth quarter of 2003.

The demand for commercial farms is also rising steadily, with 43 percent more surveyors reporting a rise than a fall, a new five-year high.

According to chartered surveyors, farmland prices averaged £8262 per hectare in the twelve months to first quarter of this year, up 12 percent from the same period last year, compared to a 7 percent rise in the fourth quarter of last year.

The rise in farmland prices continues to be exacerbated by a decline in the availability of land on the market. Much of this can be explained by a lack of certainty amongst landowners about CAP reforms, such as the issue of entitlement on sale of land, despite the Government’s recent announcement on Single Farm Payments.

The volume of sales reported in the first quarter of 2004 dropped considerably from the previous quarter’s 84 percent to just 34 percent, but much of this drop can be accounted for by the usual seasonal weakness. Nevertheless, sales activity is still down substantially in the past year by 51 percent.

Surveyors’ outlook on land prices is very confident, close to a six and a half year high, suggesting that farmland will continue to see strengthening prices in the next few quarters.

RICS rural spokesman and chartered surveyor, Julian Sayers, says:

‘Things are changing in the rural land market as the trend seen over the past two years begins to turn around. For the first time since 2002, the influence of non-farmer buyers is decreasing in favour of farmers.

‘This has been brought about by an improvement in the returns for certain sectors and growing certainty regarding the outcome of the CAP mid-term review.

‘Chartered surveyors believe, however, that some farmers are holding back from putting their property on the market until the final implications of the single farm payment regime are known.’

Key facts in the survey:
• A robust national housing market and non-farm buyers continue to support the market, despite a slowdown in sales activity
• Demand for land from commercial farms and individual farm buyers is on the increase
• There is a general decline in the supply of land, reflecting uncertainty over the CAP reform’s impact on the market.

Halifax - Empty Homes - A National Snapshot

New research by Halifax shows that across Great Britain there are around 860,000 empty homes or 3.4% of the total dwelling stock.

The key findings are:

The most empty homes are in Birmingham (17,490), Liverpool (15,692) and Manchester (14,017). As a proportion of the local dwelling stock the most empty homes are in Burnley (7.7%) and Liverpool (7.6%) while the lowest proportion of empty homes are on the Isles of Scilly (0.2%), Berwick-upon-Tweed (0.3%) and Cambridge (0.4%).

Regionally the North West has the most empty homes (135,106), close to 5% of its dwelling stock. The North West alone accounts for 16% of all vacant dwellings in Great Britain.

The least empty homes are in the South East and the East of England. 2.3% and 2.7% of their dwelling stocks respectively are vacant. Despite a chronic housing shortage, London has close to 100,000 vacant dwellings, around 3% of its total dwelling stock.
Areas with a high number of empty homes tend to suffer from urban deprivation. 4 of the 5 most deprived areas also have the highest proportion of empty homes in England. At the same time 70% of English areas with more than 5% of their dwelling stock empty fall into the 95 most deprived areas in England (i.e the top 25% of deprived areas).

House prices are lower in areas with an above average number of empty homes. Eighty percent of local authority areas with more than 5% of their dwelling stock empty have house prices below the regional average. House prices in areas with a significant amount of empty homes were close to 30% below the average house price for the UK.

The majority of empty homes (84%) are privately owned in England, the only area for which data is available. In areas with above average numbers of empty homes, many public sector properties are also vacant. For example, in Liverpool more than 40% of empty dwellings are publicly owned.

Private sector homes usually stay empty for less than six months. Across England only 1.8% of private sector dwellings were unoccupied for more than six months. However, several areas, including Manchester, Pendle and Burnley had more than 5% of the private sector dwelling stock empty for more than six months.

Tim Crawford, Group Economist at Halifax, commented:
"Empty homes and urban deprivation go hand in hand. Government policy, in our view, needs to tackle urban blight and the empty homes problem at the same time. Making an area more attractive to live in should significantly reduce the number of empty homes there."

RICS slams Government move to regulate commercial leases

The government is considering legislation on commercial leases in England and Wales too early and with far too little consultation says RICS.

The first consequences will be an increase in initial rents for tenants as landlords and investors seek to compensate for reduced security of income.

Graham Chase, RICS commercial property spokesman, said:

‘This is likely to penalise the very people the government say they want to support. Business tenants.’

The government decision was made ahead of the final independent review of the Code of Practice for Commercial Leases in England and Wales launched by Sally Keeble MP, in April 2002.

The interim report produced by the University of Reading in December 2003 is based on a sample (taken from the Valuation Office Agency and Investment Property Databank) of leases agreed between 1997 and the end of 2002. Only 9 months of lease transactions during the Code’s existence were available, along with 46 in-depth interviews conducted with a sample of professional advisers in April 2003.

This is insufficient research or consultation on which to base a decision that will have such far reaching consequences in an £450bn industry.