Property Crumble

Commercial Property Time Bomb?

The affect of the commercial property sector – which is linked to the health of companies using warehousing, offices or retail space – on the residential property sector should be negligible.

Sadly, this decoupled effect isn’t going to work in this property recession.

Here’s why:

Residential property values are closely linked to the ability and willingness of banks to lend or issue residential property mortgages (okay, also known as home buyer mortgages).

The growth in prices in the US and UK and other developed western European economies since 2004 has largely been a result of increased credit and not fundamental shifts in demand or capacity to purchase.

Therefore, the role of finance in determining property prices has grown significantly in the past 5 years such that what affects the banks now directly and significantly affects the availability and price of residential mortgages and therefore house prices.

Remember that at the peak in 2007,

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Rob Perrins Managing Director of Berkeley Group

Whilst the property market indicies tell us that property prices have risen slightly over the past couple of months, the latest results from Berkeley Group PLC paint a different picture.

Rob Perrins, Managing Director, said

The value of sales are well ahead of 2008 and approximately 40% below historic averages over the past six years.”

and

Transactions fell from 968 to 914 units and average sales prices have fallen from £399,000 to £299,00

and

we have seen “positive signs from equity rich customers, particularly from overseas who have the additional benefit of the depreciation of Sterling

So, what are we to make of this?

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