Jumpy market still has jitters

25/01/2010

Despite increasingly upbeat market reports towards the end of last year, there are reasons for caution. Referring to the increase in prices in the second half of 2009 Simon Rubinsohn, chief economist of the Royal Institution of Chartered Surveyors, says: “It doesn’t seem the typical market as it is constrained in different ways. It’s constrained by finance, it’s constrained by supply. It’s reasonable to assume lack of supply is still underpinning prices.”
Eventually, an increased supply will come onto the market which, if combined with the expected rise in unemployment and potential rises in interest rates, will see prices dip again. In the face of uncertainty – and worried about exposure to a ‘double dip’ recession – many people are offloading as much debt as possible. In the second quarter of 2009 mortgage borrowers repaid £7bn to lenders, a stark contrast with the feverish levels of equity withdrawal at the height of the boom.
These factors are having an impact on the upper end of Scotland’s residential sector, according to David Alexander of estate and letting agent DJ Alexander. “Despite the talk of recovery, the market for expensive homes is actually very patchy,” he says. “Sometimes you achieve a surprisingly quick sale, but then find very similar properties take much longer to sell. Lots of people are sitting on their hands, waiting to see which way the market goes in 2010.” He argues the market is being damaged by sales falling through at the last moment. “People are pulling out of deals because the would-be purchaser can’t find the money, or because the sale of their own home fell through. Then there are those who attempt to chip the price they originally offered. All of this is creating uncertainty.”
Meanwhile, demand for rental accommodation at the top of the market has fallen sharply. Homes that would once have commanded £2000 to £3000 per month are taking longer to find tenants, or are having to accept significant cuts in rent. Managing a range of upmarket properties for clients currently working abroad, Alexander says: “Demand is normally driven by senior people moving temporarily to Scotland from the south, but that sector has shrivelled since the banking crisis. However, many of the people who own those homes are will accept lower rents since they intend to live in the property in the future and are earning good money abroad. In the current situation they’ll take what they can get.”
Lower down the pecking order, demand for rented accommodation is much more buoyant. Alexander says: “Given that there’s no capital appreciation to be had from buying a home at the moment, a lot of people are keen to rent. There’s also a lot of very interesting properties coming onto the market because owners would rather let them out than sell at this stage. Builders are also offering a lot of properties for rent, since they can’t find buyers. The result is that renters have a good choice.”

BUSINESS INSIDER MAGAZINE, January 2010