An overall decline in house prices has been recorded for the first time in over a year, the RICS (Royal Institution of Chartered Surveyors) housing market survey reports today (21 September). The decline follows a run of three interest rate rises in just four months over the spring and summer. Prospective buyers have taken heed of rising borrowing costs and warnings from the Bank of England, though there are few signs that a significant market downturn is around the corner.

With fewer people registering with estate agents, buyer enquiries fell for the fourth month in succession. In August 12% more chartered surveyor estate agents noticed a decline in prices than a rise, as opposed to 3% more reporting a rise in July. Sales activity fell by 11% in the quarter to August, down 4% compared to a year ago.

Surveyors have noticed a rise in the stock of unsold property since May, but this is still 12% below last year's levels. This shows that selling activity has seen little notable pick-up despite speculation over price falls.

Despite the dip in the market, a dramatic reduction in house prices is unlikely due to the stable economic climate and firm employment situation. At present, it appears that job security remains good, which is helping to maintain consumer confidence even as interest rates have risen.

London, the South East and the Eastern regions have reported the biggest falls, while prices continue to rise firmly in Scotland and the North East. Chartered surveyors are expecting sales to steady after the relaxed summer market, though some downward pressure on prices is expected to remain in the months ahead.

RICS national housing spokesman, Ian Perry, says:

'The summer is always a quieter period as people are away and tend to take a break from house hunting. Warnings from the Bank of England have reduced confidence, but houses that reflect their asking price are still attracting plenty of attention.

'Some speculation in the housing market is quite gloomy at the moment. However, we are confident that a prolonged slide in prices will be avoided, underpinned by the strength of the economy and good employment prospects.

GVA Grimley - Commercial Property Review 3rd Quarter 2004

Occupational market performance

All-property rental performance continues to improve. The rate of rental growth for UK commercial property increased to 1% in the 12 months to July (according to the IPD Monthly Index). In comparison, year on year growth in April was only 0.4%, and at the start of the year, rents were falling by 0.8% pa. However, year-on-year growth understates the current strength of the market, as rents have been rising consistently over the last few months, having fallen throughout much of 2003. Taking just the last three months to July, rents rose by over 0.3%, an annual equivalent rate of 1.4%.

Central London offices have been the main driver behind improving all property rental performance in 2004, although rents are still falling year-on-year. However, the recent rental recovery in the City has faltered somewhat in recent months, with rents falling by an annual equivalent of 5.8% over the three months to July. However, the improving occupier market in the West End has resulted in a dramatic improvement in rental performance over the last three months, and rents have started to rise. Indeed, between April and July, rents rose by an annualised 6.2%, compared with a fall of 2.5% (annualised) in the first three months of the 2004. Year-on-year growth should return in 2005, with a rise of around 2% forecast, and this should accelerate to around 5% pa by 2008.

Regional office rents have shown only modest, below-inflation, growth over the last year, with rental growth of 1.3% pa in July. We expect the rate of growth to continue at around this level for the rest of the year, with the growth rate then gradually increasing to around 4% pa by 2008.

The retail market continues to see the strongest level of rental growth of all the main commercial property sectors, at 3.8% pa over the year to July, although there are signs that the growth rate may be peaking. In the three months to July, rents grew by an annualised 3%, down from a peak of 4.9% pa in the three months to December 2003. The last three months have seen rents for high street shops rise by an annualised 2%, whilst retail warehouse performance continues to be much stronger, with growth of 5.2% (annualised).

Industrial rents continue to increase at a rate well below inflation, although the growth rate has picked up during Q2. Rents rose by 0.5% pa in July, and we expect this annual rate of growth to increase gradually, to reach around 1.5% pa by the end of 2005 and around 2.5% pa by 2007.

Commercial investment performance rental

Property yields - The recent sharp fall in yields has continued, with demand from investors remaining extremely strong. The IPD all-property equivalent yield fell from 7.4% in April to 7.2% in July. With the 0.25% rise in the base rate in August to 4.75% and 5-year swap rates also increasing, the yield gap between property and funding costs has continued to narrow. However, extremely strong investor demand for property shows no sign of slowing, and bank lending to commercial property increased strongly in Q2, with £5.7 billion of net new lending from UK banks, compared with £4.7 billion in Q1. We are therefore likely to see further downward movements in yields in the coming months.

Overall property returns were 16.1% in the 12 months to July (IPD monthly Index), a considerable increase on the 13% pa reported in April, and the highest level of returns since July 1998. Looking at the last three months in isolation, market performance is better still, with a return equivalent to 22.2% pa achieved. Capital values increased at an annual equivalent rate of 14.7% pa in the three months to July, a marked increase on the 9.2% achieved in the three months to April. Positive investor sentiment rather than the outlook for the occupational market continues to drive this growth, with falling yields rather than rental growth still accounting for most of the increase in values.

Returns by sector - Year-on-year returns increased in all three main commercial property sectors during Q2. The most significant improvement in performance came from the office sector, where returns increased from 6.4% pa in April to 9.3% pa in July, due mainly to improving conditions in London and the South East. However, central London offices still lag behind the rest of the commercial property investment market, with returns of just 7.1% pa in July. Meanwhile, the regional office markets returned 14.2% pa, close to the all-property average. The retail sector produced returns of 19.8% pa in July, up from 16.7% pa three months previously. High street shops produced a return of 20.1% pa in July, whilst retail warehouses returned 19% pa. Industrials returned 15.4% pa in July, compared with 12.9% pa in April.

Property performance vs. other asset classes - In the 12 months to July, commercial property has again overtaken equities as the best performing of the major asset classes. Returns from equities have fallen sharply over the last few months, from a peak of 31.9% pa in February to 10.7% pa in July. This contrasts sharply with the steady increase in commercial property returns to 16.1% pa. Gilts continue to produce very low returns, but have recovered slightly to 0.9% in July.

Outlook for returns - 2004 is proving to be an exceptionally strong year for the property investment market, with returns of around 16% looking particularly impressive given the current low level of inflation. We expect that 2005 will see an end to the downward movement in yields and so a return to a more sustainable, but nonetheless healthy performance, with returns approaching 10%. From 2006, we expect returns in the region of 8-9% pa.

Landlords forecast steady growth in Buy to Let over next 12 months

The typical landlord expects to grow his or her portfolio of rental properties by 6% over the next 12 months, according to Paragon Mortgages' landlord survey for the third quarter of 2004. This figure, which is the same as that reported last quarter, suggests that landlords are forecasting steady, rather than explosive growth. A year ago, their growth forecast was 8.2%.

The investors responding to Paragon Mortgages' survey now have an average of 11.6 properties, 5.5% more than a year ago and 2.7% more than last quarter.

John Heron, managing director of Paragon Mortgages, explains: "The housing market has been pretty busy over the last year, and that includes buy-to-let. It's not surprising that buy-to-let activity has cooled off a little in response to the five interest rate rises that we have seen since last November. In 2003, landlords told us they were expecting to grow the number of properties in their portfolios by between 8% and 10%. This year, they have trimmed their expectations to 6% - but that's still steady growth by anyone's standards."

Landlords' sustained confidence in the future is underpinned by their perception that tenant demand will remain solid. 9 out of 10 landlords (89%) believe tenant demand is either stable or growing, with only 9% saying that demand is falling. Last quarter, opinions regarding tenant demand were slightly less positive, with 15% of landlords saying that tenant demand was falling, and 81% saying it was stable or growing.

'Steady as she goes' is the order of the day," says John Heron. "The proportion of landlords saying that tenant demand is falling has gone down significantly, from 15% to 9%. What we're seeing is a steady, stable market for rented properties: more than two-thirds of landlords describe tenant demand as stable, up from 55% last quarter. Many people either need to find rented homes because they can't afford to buy, or choose rented homes because it suits their lifestyles. This means that over the long term there is sustained demand for buy-to-let properties. The sector is neither growing rapidly, nor declining. Just 1.5% of landlords reported that demand was 'booming' (down from 3%), and only 0.5% said it was 'slumping', down from 1.4%."

Landlords expect the net value of their portfolios to increase by 3.2% over the next 12 months.

For the third quarter in a row, landlords have reduced the average gearing of their investment portfolios (the proportion of borrowings relative to value). Gearing now stands at 38%, down from 43% in the Q4 2003 survey. While there was a slight rise in gearing in the autumn last year, the trend is now clearly downward. In fact, it has fallen significantly in just over two years, from 48% in Q2 2002 to the current level of 38%.

John Heron explains: "This drop in gearing is positive, showing that investor landlords are adopting a very prudent approach to the level of their borrowings. While there was a slight rise in late 2003, gearing levels are now declining steadily. 68% of landlords have borrowings of less than half the value of their portfolios, slightly down on last quarter, and 31% have borrowings of less than a quarter. Only 5% have borrowings of more than three quarters of the value of their portfolios, and none exceeds 90%. This illustrates that buy-to-let investors are financially in a much more comfortable position than the average owner-occupier, and better placed to cope with the rising interest rates we have been experiencing over the past 10 months."

Voids - the average time during the year when the property is not let - fell slightly this quarter, from 3.0 weeks to 2.9 weeks, following small rises in the previous two quarters.

"Over the longer term, voids remain pretty stable at around or just under 3 weeks," says John Heron. "That is a level at which landlords are pretty comfortable, and there is no sign of them struggling to find tenants. The average number of viewings required to secure a letting has also dropped a little this quarter, from 3.6 to 3.4."

Gross rental returns on landlords' property portfolios average 7.1%, very slightly higher than the figures reported in Paragon Mortgages' Buy-to-Let Index. On a net basis (after finance and other costs), landlords achieved a yield of 5.2%, unchanged from Q2. The survey indicates that landlords with larger portfolios benefit from economies of scale and, as a consequence, achieve higher yields (5.3%), compared with only 4.9% for landlords owning only one or two rented homes.

Looking forward, landlords are assuming that yields will ease slightly over the next 12 months, on both a gross and a net basis, to 6.9% and 5.0% respectively.

The survey shows further growth in the number of landlords who are members of professional associations, particularly among those who own at least three properties. Nearly 3 out of 10 of them are members, with the National Landlords Association being the most popular choice.

John Heron comments: "An increasing number of landlords value the benefits of membership of a trade body, to represent their interests to government, media and the public at large, and to provide useful information and support."."

RICS - The need to adjust your business premises

From 1st October, everyone from the local shopkeeper to the multinational corporation will need to review access to their services. But according to RICS (Royal Institution of Chartered Surveyors) many businesses are unaware that there are many different options available which can avoid costly building alterations.

Under the terms of the Disability and Discrimination Act, firms will need to identify and address the physical features which make it impossible or unreasonably difficult for disabled people to use their services. Failure to comply could result in civil proceedings.

In order to overcome the barriers to people with disabilities, businesses will have a duty either to make adjustments to their premises, or to change the way they provide services.

RICS spokesman, Graham Yates, says:

'This Act is about providing access to services and not about altering property. People need to think beyond just making physical alterations to their buildings, and more about customer services.

'For example, to give a disabled person access through a heavy office front door need not require installing expensive or complicated controls and sensors, someone on hand to open the door will do an equally satisfactory job.

'What concerns us most is the likelihood that many small businesses and shops who lack professional advice will baulk at the thought of costly building adjustments and will, to avoid potential criticism for lack of action, decide to withdraw customer facilities, such as toilets, altogether.'

'Good advice, preparation and flexibility are key. The test of the Act is one of reasonableness and it does not have to result in damage to listed buildings or fragile environments or even exorbitant costs.'

The best approach is to employ a professional to undertake an access audit. This will be followed by advice on the options available, which may involve removing, altering or providing a means of avoiding the physical feature. However, a willingness to provide the service in some other 'reasonable way' may be equally as acceptable.

Experienced chartered surveyors have the specialist skills to carry out access audits, particularly those who are members of the National Register of Access Consultants (NRAC). They can explain where responsibility lies, what adjustments are reasonable and cost-effective, and how both clients and the public benefit from accessible services.

Department for Constitutional Affairs - New option for property owners

From 27^th September owners of flats and other premises forming part

of a larger building or development have a new way of owning their homes and business premises.

Commonhold gives these property owners the chance to be freeholders rather than just leaseholders. It does this by providing a legal framework for the proper management of the remainder of the building or development in which they live or work. Until now, a proper management structure has only been achievable in practice by using leases, which are often lengthy and complicated.

Commonhold is available for new and existing developments.Land Law Minister David Lammy said:

"Flat owners now have a new way of owning their homes and managing the building of which they form part. Commonhold will allow them to be freeholders of their own properties and to deal collectively with repair, insurance, anti-social behaviour and other matters of mutual interest through their own limited company known as a commonhold association.

"Commonhold is also available for use by other residential and commercial property owners. It may not be suitable for all owners and all buildings but it allows property owners to consider what works best for them. This fulfils a manifesto commitment for greater housing choice."

Commonhold, the take-up of which is voluntary, gives permanent ownership, unlike leasehold, which is time limited.

Commonhold documents will be written in a standard format in clear English, making them easier to understand than traditional leases, which are often defectively drafted. Additionally, there will be only one set of documents per commonhold, readily accessible at Land Registry, rather than one lease per property within the development, making property management simpler and rights and responsibilities more easily understood.

ARLA - Slams Buy to Let abuses

Re-affirming the facts about true Buy to Let, the Association of Residential Letting Agents, ARLA, and the ARLA Panel of Mortgage Lenders believe some of the public are at risk of being sidetracked into property purchases that are improperly linked to Buy to Let.

Speaking in London today, (Wednesday September 22), Robert Jordan, President of ARLA said that true Buy to Let is an example of private enterprise fulfilling a social need for choice in housing while also providing a fair return for the landlord. "It is about fair returns and quality accommodation, not get rich quick schemes."

"True Buy to Let has provided a choice and quality of accommodation that is better than ever before, a fact recognised by the Office of the Deputy Prime Minister," he added. "With the aid of Buy to Let, the Private Rented Sector provides flexible housing for a mobile workforce, accommodation for the ever expanding number of students in higher education and a partnership with registered social landlords. All of this is about mature investors supporting the sector for the long term."

Although repeated surveys allow the ARLA Panel to be confident that most investors in residential property invest for the long term, using long-term tenancies, they are seeking to remind the public that many areas of property dealing are being improperly linked to Buy to Let and are abuses of the brand. These include speculative buying off plan, buying in foreign markets and in holiday homes in the UK and abroad. Said Robert Jordan, "Super house inflation has brought about a secondary market that purports to be Buy to Let and probably uses mortgages from some lenders to fund these activities. These include off-plan buying where the purchaser is speculating on the increase in house prices. Sometimes these propositions include a guaranteed rent but the public should be aware that these guarantees are no more than a delayed discount and no real guarantee of the rent that can be achieved, or that the property can be let at all."

The phrase Buy to Let has also being used to sell holiday homes. Robert Jordan pointed out that the Dalmation and Black Sea coasts are a forest of cranes and new building. "Letting these properties is, at best, a way of subsidising holidays. You may get a let or two but the competition is fierce, so don't bank on it. Holiday homes in the UK are not Buy to Let either, nor are rooms for sale in an hotel," he added.

John Heron, Chairman of the ARLA Buy to Let Panel and Managing Director of Paragon Mortgages, said that new Buy to Let lending looks impressive but it still accounts for only a small proportion of the total Private Rented Sector.

He explained that, according to government, the Private Rented Sector has some two and a half million homes and by the end of 2003 the Council of Mortgage lenders had reported that there were just 400,000 Buy to Let mortgages in place. "This is in a market that is polarised between small scale private investors and professionals. 53% of the investors in the Private Rented Sector own just 3% of the rented housing stock," he said.

Research shows that the small-scale private investors augment other investments by owning between one and five properties. They are less yield driven than professional investors who commonly hold 11.5 properties and for whom Buy to Let is a primary business activity. Both groups see Buy to Let as a long-term strategy.

"In contrast, property speculators buy and sell quickly, are price inflation driven, have no real interest in tenants and should not be given access to Buy to Let mortgages," John Heron added.

Buy to Let lending figures show that arrears are half the level of those experienced with other mortgages, with losses and re-possessions almost non-existent. There is no reason for this to change as, looking to the future, the ARLA Panel believes that Buy to Let has strong defensive qualities in a softer housing market as the need for rented properties expands.

This new initiative to hone the definition of Buy to Let was launched a week before the eighth anniversary of the launch of Buy to Let. It coincides with the publication today (Sept 22) of the third quarter ARLA Review and Index which shows almost a third of all ARLA offices report more tenants than properties, up from 20% three months ago. This 12% swing is seen as an important indicator of a sustained pick-up in new lettings. It is the third quarter to show a reduction in available rental stock.

RICS - Consumer confidence resilient in the face of higher interest rates.

Economy

Tentative signs of a slowdown in the economy have increased but activity remains firm

Despite a rise in the cost of borrowing, consumers view their financial circumstances as good, giving little reason to believe the economy will experience a hard landing in the next year

However, risks to economic prospects remain with the global economy hitting some head winds as oil prices have jumped

Commercial Property Market

Business demand for commercial property has seen a muted recovery in 2004 in what is still a tenants market

Rents have been slow to respond to better demand because of relatively high vacancy rates

Despite the weakness of rental growth, investment demand for real estate is strong given the steady returns delivered over the past decade and disappointment over the equity market's performance

Residential Focus

Over the last few months most major housing market indicators suggest activity has come to an abrupt halt

There has been speculation that prices are set for an imminent fall, with some commentators suggesting that high overvaluation mean a correction is inevitable

However, more optimistic commentators believe that prices are more likely to stagnate - this residential focus goes on to outline the opposing rationales