Tag Archives: real estate
UK commercial real estate performance set to be more polarised in 2016
After a strong 2015 experts expect the performance across different parts of the UK’s commercial real estate sectors to be more polarised over the next 12 months. According to the latest analysis from Schroders it has been another good year for UK commercial real estate and unleveraged total returns are likely to be close to 15%. One of the keys to success in 2015 was rental recovery. The report explains that whilst one of the drivers was a continued favourable fall in real estate yields, the key difference to 2014 was a broad based recovery in rental values. While central London offices have led the upswing, several other cities including Brighton, Bristol, Cambridge, Manchester, Leeds and Oxford have also seen a significant increase in office rents. Likewise, industrial rents rose in many locations, boosted by growing demand from on-line retailers and parcel couriers. In contrast however, the retail sector is still adjusting to a world of multi-channel sales, the report adds. While there are pockets of rental growth in London and some tourist destinations, most centres have a significant amount of vacancy and rents were either flat, or fell slightly in 2015. The outlook for 2016 is already categorised by some commentators asking whether we are now at the top of the cycle. Schroders' head of real estate, Duncan Owen, explained that the income from commercial real estate has historically been very stable, but capital values have been cyclical. However, capital values have risen by 25% in less than three years and there is sentiment that cannot continue. ‘This sentiment is understandable, but not necessarily rational. The immediate trigger for previous downturns has been a recession, which has depressed rents and pushed up real estate yields as investors have withdrawn from the market and liquidity has dropped,’ said Owen. ‘In addition, commercial real estate has had a habit of contributing to its own downfall, either through excessive borrowing which inflated prices such as from 2005 to 2007, or because of a boom in development which left an oversupply of space, for example from 1988 to 1990, and falls in rents,’ he added. He believes that none of the usual suspects appear to yet be evident currently. ‘Looking at the economy, the outlook is positive and the consensus is that UK GDP will grow by 2.25 to 2.5% through 2016 to 2017. The main reason for being optimistic is that the UK is finally seeing a recovery in productivity, which should support a steady increase in real disposable incomes and consumer spending. Furthermore, exporters stand to gain from faster growth in the rest of the European Union, which accounts for 45% of total exports,’ Owen pointed out. His analysis also points out that there are few signs of excess borrowing. ‘In general, banks and other lenders have continued to take a disciplined approach to commercial real estate and although total loan originations in 2015 are likely to be around £50 billion, they are still… Continue reading
Negative equity still preventing the full recovery of the US housing market
Despite improvements in the negative equity rate, underwater mortgages are holding back the housing market in the United States from full recovery, especially in hard hit areas, a new report suggests. The rate of negative equity among home owners dropped a full percentage point in the third quarter of 2015, from 14.4% to 13.4%, and down 16.9% from a year ago, according to the latest research from real estate firm Zillow. It said that declining negative equity will allow almost a million newly freed home owners who have not yet refinanced or have been waiting to sell to do so before mortgage rates rise, which will likely happen in coming weeks. It also pointed out that negative equity affects not just the home owners who are underwater, but entire markets where high rates of negative equity are slowing recovery. Negative equity is one of the most persistent reminders of the housing market crash. Home owners who owe more on their mortgage than their homes are worth cannot sell, which holds back markets from recovering. So, some eight years after the housing crash, it remains a major barrier to a full recovery in certain markets. In Las Vegas, for example, 22% of home owners remain underwater, and another 19% are effectively underwater, meaning they have less than 20% equity in their home and therefore can't cover the cost of selling their home and buying another. Las Vegas has had the highest negative equity rate in the country for the past four and a half years, and Kansas City and Cleveland, with 16.6% and 16.8% negative equity respectively, are not far behind. San Francisco and San Jose are the only large markets where less than 5% of home owners are underwater. Almost a million home owners were freed from negative equity in the third quarter of 2015. The improving rate means those people may be able to sell or refinance their homes before mortgage interest rates rise, as they are expected to do in the coming weeks. ‘Negative equity has become almost an afterthought in a handful of the nation's hottest markets, but is holding back the recovery in dozens of large markets nationwide,’ said Zillow chief economist Svenja Gudell. ‘Despite steady declines in negative equity, many cities are still facing tight inventory, especially among entry level homes. Those homes that are available are often not in demand and stay on the market for a long time. This can be extremely frustrating for buyers and sellers alike, as they come face to face with the difficult side effects of negative equity,’ she explained. She also pointed out that negative equity affects individual home owners, but markets with high negative equity rates tend to have fewer homes for sale, especially lower priced homes favoured by first time home buyers. In markets with a lot of negative equity, homes generally take longer to sell than in other places. The top five large metros with the smallest share of underwater… Continue reading
Property stamp duty costs in Australia up almost 8% in six months
Stamp duty taxes on property in Australia have increased by 7.9% in the last six months and the bill is now equivalent to almost four months’ worth of earnings, the latest research shows. According to the report from the Housing Industry Association in November 2015 the typical stamp duty bill nationally rose to $19,045 from $17,653 in June. The report also points out that stamp duty is causing mortgage repayments to increase by $1,165 per year, or $34,955 over a 30vyear loan term. ‘The cost of stamp duty has a significant negative multiplier effect causing a downward financial spiral for households. Apart from the immediate effect of being over $19,000 worse off, stamp duty results in mortgage interest payments increasing by about $15,900,’ said HIA senior economist, Shane Garrett. ‘Damage from the tide of stamp duty doesn’t stop there. Home buyers have smaller deposits after stamp duty is paid and must bear larger mortgage debt. As a result, significantly higher LMI charges must then be paid,’ he explained. ‘On a standard home purchase of $527,000, stamp duty can push the LMI premium up by another $7,855. If that’s not bad enough, a further layer of mortgage interest is added on top of the LMI premium if it is capitalised,’ he pointed out. ‘The end result is that the typical stamp duty bill of $19,045 can snowball up to about $50,000 once LMI and mortgage interest are factored in. This is an unacceptable burden to place on ordinary home buyers,’ he added. ‘As state governments rely more and more on revenue from stamp duty, they have been blinded to the obvious consequences of these costs have on prospective first home buyers. Last week’s Productivity Commission report also noted the huge disincentive that stamp duty places on older households wishing to downsize,’ he concluded. A breakdown of the figures show that buyer in the Northern Territory Shane continued to suffer the highest stamp duty bills at $25,600, followed by Victoria at $24,700 and New South Wales at $23,600. Queensland continued to offer the lowest stamp duty bills by a comfortable margin at $6,300 followed by Tasmania at $9,300. Stamp duty bills are the fourth highest in the ACT at $18,400, followed by Western Australia at $16,300 and South Australia at $15,400. Continue reading
